22 CALIFORNIA LODGING NEWS www.calodging.com CREATING A NEW BOUTIQUE HOTEL PROPERTY is always a challenge, even more so when it involves new construction in San Francisco. So, it was no surprise when the team behind The Hotel Castro found it impossible to get conventional bank financing for the $7.5 million project in one of the city’s iconic neighborhoods. It didn’t help that the hotel’s General Partner, Gannon Tidwell, made his pitch during the early months of the COVID pandemic. With the market shaky and the prospects for tourism uncertain, banks were averse to taking the risk to fund Tidwell’s project. Yet, the unique hotel tucked onto a residential street a block from the center of the Castro neighborhood is welcoming guests today, thanks to more unconventional financing. The partnership obtained their need with money from the Small Business Administration’s SBA 504 program, which offers in the SBA’s words, “longterm, fixed rate financing for major fixed assets that promote business growth and job creation.” The Hotel Castro’s loan was facilitated by TMC Financing, an Oakland-based lender that is one of the Certified Development Companies that have access to SBA 504 funding. TMC noted that this financing option is ideal for smaller properties as well as new establishments without the operating history that conventional lenders might want to see. “Conventional lenders prefer flag hotels from big brands, and obtaining the required permits can be difficult,” said Anna Rummelein who administered the SBA 504 loan on TMC Financing’s behalf. “Without SBA financing, independent hospitality properties struggle to get financing even at the best of times.” The SBA 504 Loan Program empowers business owners to purchase fixed assets such as owner- occupied commercial real estate and equipment. The program boasts low down payments and below-market, long term, fixed interest rates. “I’ve been financing real estate for more than 20 years and this is probably the hardest financing request that I’ve ever worked on,” Tidwell says. “Anna and I worked together to figure out how to do it.” A construction project that was initially planned to take 18 months was ultimately completed in 30. During that time, Tidwell saw other hospitality properties close down and new construction called off or abandoned. But his partnership with TMC Financing saw him through to the end and a successful launch. “Hotel Castro can now take advantage of San Francisco’s economic rebound,” said Rummelein. The total project cost for Hotel Castro was $7.5 million, with $1.5 million going to the cost of land and $6 million to construction. The SBA 504 loan was structured as a 25-year term loan with a 20 percent down payment. The property opened its doors to the public in early 2022. The future looks bright for The Hotel Castro in its beloved Castro neighborhood. As a new anchor business, it is delivering economic opportunities and introducing hundreds of guests to San Francisco every month. “I am pleased to report that the hotel is in its eleventh month of operation, we’re profitable, and we’ve been getting really good reviews. We keep growing our client base and we’re excited for San Francisco’s tourism industry to continue to recover,” said Tidwell. “We are optimistic that every year is going to get better.” SBA
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