CHLA Lodging News Sept/Oct 2019

14 CALIFORNIA LODGING NEWS www.calodging.com WE ARE SEEING NEW HOTEL projects get approved. We are seeing new hotel projects get rejected. For us mortgage brokers, the new hotel pipeline is gaining steam amongst hotel developers with favorable projects that have feasibility studies backing the projects’ financials. These well-planned proposed franchise properties are able to answer the questions that lenders are asking: Does the property and franchise make sense for the area? Will the strength of the developer overcome any potential obstacles in the project? Will the project meet the debt service coverage ratio within the required timeframe? Time and again the lenders will be interested in a project only to turn it down after the feasibility study comes back with weaker than expected numbers. But these projects can be salvaged with the right preparation and sometimes even a little negotiating with the right people. Developers are also having to deal with several roadblocks to seeing their project completed. Construction costs have risen over the past two years, with project costs even increasing during the course of development. The Small Business Administration (SBA) has pulled back from lending on new hotel construction in certain areas, limiting the availability of funds for new hotel construction. Developers are also competing with other developers as to which loans will get approved before banking portfolios get maxed out with certain property types. With all of these obstacles, it is important to surround yourself with a good team; an experienced designer and architect, a contractor that has built similar properties, an operations team that can address both the market demand and hotel operations once running, and finally a financing team that steer the project to the right lender and loan product. For the best outcome, developers should look for a mortgage broker that has a network of lenders able to finance hospitality projects and a financing team that has experience with hotel development, operators and owners. At Hallmark Funding Corporation, we have helped usher projects through by simply reviewing plans, introducing developers to the right contractor, finding ways to cut costs and expenses that the architect and contractor might have missed, even going so far as to have the franchise representative provide different hotel brands within the franchise umbrella. Going beyond a good team, mortgage brokers primary function is to match a borrower with the right lender, especially now that the Small Business Administration funds have gotten harder to secure for new projects. The mortgage broker is able to step in with the right funding source for the project and increase a borrower’s strength through preparing them to be meet a lender’s expectations and requirements. Different banks have different appetites for property types, some willing to lend on startups with a conventional loan up to 70% Loan- to-Cost if the debt service coverage ratio meets the projections. Other products are also available for different types of projects, depending on the lender and its footprint in the industry. Fortunately, the SBA isn’t the only government agency able to assist in financing as some of our We are seeing new hotel projects get approved. We are seeing new hotel projects get rejected. For us mortgage brokers, the new hotel pipeline is gaining steam amongst hotel developers with favorable projects that have feasibility studies backing the projects’ financials. A Partner in Your New Development Success By Nick Hayhurst, President, Hallmark Funding Corporation Mortgage Brokers