Commercial loans for Hotels

Obtaining a commercial loan for hotel is similar to obtaining a commercial loan for any of the owner-occupied commercial properties. The differences observed are very subtle. Driving force here, i.e. with regard to hotel income, is revenue/available room or RevPar. RevPar is usually calculated through the multiplication of ADR, i.e. average daily room rate by its occupancy. In fact, it’s one of the key indicators of performance. Increase in RevPar can be described as the indication that there is an improvement on the account of occupancy, ADR, or a mixture of both of them.

Even though RevPar goes on to evaluate just strength of room revenue, it’s conventionally the most pertinent epitome of performance. Several full-service hotels move further with generation of revenue via other means like casinos, restaurants, spas, conferences, or the other amenities. However, most of the properties of hotels are limited service-flagged ones, or unflagged ones. A hotel with limited service can be referred to as a hotel which does not have a restaurant.

As operating costs with regard to restaurant components usually run in comparison with hotel operations, it’s common for net operating income (NOI) as percentage of ‘total sales’ to be lower for full service as compared to hotels providing limited services. Owing to all this, most of the commercial lenders prefer having financed limited-service hotels. A commercial loan for hotel is always granted keeping these things in mind.

Flagged v/s unflagged properties

A flagged hotel can be referred to as the hotel belonging to a national franchise. One of the examples of flagged property is that of a Best Western or Holiday Inn. Flagged property goes on to provide advantages of uniform standard which is upheld through the franchisor. A guest can reside in flagged property on the East Coast. At the same time, he can expect an identical flag on the West Coast for having an identical standard of amenities and cleanliness. The property owner acquires benefit of marketing and nationwide system of reservation. To avail of this benefit, the operator is usually expected to have a paid franchise fee that can conventionally range between 5 and 10% of the revenue of room.

On the account of advantages of flagged property with regard to a commercial loan for hotel, the majority of commercial lenders give preference to have them financed over the unflagged property. At times, getting a commercial loan for hotel that is unflagged can prove of being extremely difficult, particularly if property is not in the destination resort area. A destination resort area could be a region such as Myrtle Beach, Miami, or Orlando. If you happen to have unflagged property in a destination resort area, obtaining a commercial loan for hotel can prove easier.

Exterior corridor v/s interior corridor

An exterior corridor property can be referred to as one of the hotel properties where doors leading to rooms can actually be seen from the property’s exterior. At times, these are called motels in place of hotels.