We track AAA bond spreads and lenders’ break even profitability to get the lowest possible interest rates while pushing for max proceeds.
What is a permanent loan?
Permanent loans are almost always non-recourse. For maximum cash out, CMBS is the only consistent option with LTV’s up to 70%. Life companies are active but at lower leverage (55% to 60% LTV) and higher amortization.
A permanent loan will have a fixed interest rate for the life of the loan. All permanent loans have onerous prepayment penalties either with defeasance or yield maintenance.
You need to be very careful about doing a permanent loan if you are considering selling your hotel, and you should consult with F10 regarding loan amount and assumption features.
We have balance sheet lenders that fund higher leverage, which can be ideal for PIPs, flag conversions or other value-add situations.
Why should I consider a bridge loan?
The number 1 reason for choosing a bridge loan is flexibility. Bridge loans are typically structured with a 3 year term and two, 1 year extension options. The rate will float over a LIBOR index, and the payments will be interest only. During the first 18-24 months of the loan, there will be a declining prepayment penalty.
Bridge loans are great for value-add opportunities, such a PIPs or flag conversions. After the owner’s business plan has been executed, a sale or refinance can be pursued without penalty.
Because of the expected increase in collateral value, bridge lenders will advance up to 75% or 80% of the total capitalization.
In order to succeed in a market that is rapidly drying up, we scour the country to find lenders with available construction capacity.
Hyatt Regency Lake Washington
Can I qualify for a construction loan?
Securing a construction loan is getting increasingly difficult. Recourse loans are available from bank syndicates, national banks, regional banks and SBA 504, depending on the loan size and the borrower’s development experience, net worth and liquidity.
Non-recourse options are available but are expensive. These lenders are also quite particular about development experience. In addition, the non-recourse lender will require a completion guaranty.