ATLANTA—A developer is building a $10-million Hilton Garden Inn, and needs $8 million in financing to finish the project. The developer calls on Francisco Nacorda, executive VP of The Loan Depot, to ask what the options might be.
“I’m going to ask you to come up with more cash,” he said.
The scenario was laid out by Peter Berk, president of PMZ Realty Capital, who moderated the “Active lending on mid-market deals” panel at the 27th annual Hunter Hotel Conference. And it illustrates that money is available for mid-market deals—but there is going to be a price.
“There’s a lot of capital out there that senses the opportunity,” said Joseph R. Bonora, managing director of Aileron Capital Management.
Berk agreed. “There’s financing out there for anything,” he said. “I could finance this chair. It’s just a matter of what it costs.”
Berk said people come into his office all the time asking what the maximum loan is they might be able to get. “Well, the max could be a 90% loan with an 8% interest rate,” he said. “There’s a cost to everything.”
Another example offered up by Berk: A developer is building a $5-million Holiday Inn Express and needs a $4-million loan.
Nacorda said leverage on such a deal would be between 75% and 80%. If it’s new-construction, the rate would be prime plus 2.5% to 2.75% for an interest rate of about 5.75% or 6%. The construction loan and permanent loan would close at about the same time, would be full recourse and would amortize over 25 years.
Back to fundamentals
Melissa Butler, VP of lending at PMC Commercial Trust, said a property she works with would need to have some fundamentals. “A property with no cash flow? To be honest, that’s tough. That’s not us.” She added it would be “tough” to get a lending deal done valued less than $3 million.
She added that not all lenders will be focused on cash flow. Others, for instance, will be looking at leverage.
“We’re real black and white; that’s how we look at it,” Butler said. “Top line, bottom line, cash flow.”
She added: “That’s how it works, by the way. That’s what we talk about if you call me on the phone.”
David Turley, principal of Cronheim Mortgage Capital, said his shop follows the customer.
“Our business model evolves with the market,” he said. “We look at where the opportunity is.”
Sometimes that opportunity is a repositioning. Tim Maher, president of Pinnacle Hotel Finance, said his company’s sweet spot is value-add deals that might not appeal to a wide variety of lenders.
“A repositioning deal becomes similar to construction,” Maher said. “You need to leverage community and regional banks.
“Outside of (major metropolitan statistical areas), that’s still a piece of the market that’s a little choppy. Leverage local relationships the best you can. Once you get a property open and stabilized, there is a plethora of financing availability for people on a permanent basis.”
At the end of the day, the first step when it comes to dealing with lenders is pretty simple.
“If I call you, call me back,” Turley said.