Real Estate 
Capital

 

Guide to Funding Limited Service and Flagged Hotels with the SBA 504

SBA 504 is Tailored for Hotel Construction and Acquisition

The SBA's mission is to strengthen the nation's economy. Their goal is to assist eligible hotel operators acquire, improve and build new locations from the ground up.

Limitations of Conventional Lenders

Community and regional banks limit their exposure to the hospitality industry. Because their lending portfollly focused, they are sensitive to hotel concentration. The SBA does not face this limitation.

The SBA 504 encourages lenders to partner with the SBA to assist qualified hotel operators.

The average loan size for a first lien SBA loan of $5-$10 Million poses significant risk to smaller lenders. The SBA, in effect, provides an incentive for private lenders to extend credit. The Federal government provides up to 53% Loan-to-Value and takes the first loss position. This gives bank lenders comfort in providing additional funds up to 85% Loan-to-Value.

Cost of Funds - Typical Rates

During the construction period of 18 to 24 months expect rates in the 8% to 9% range as of August 2019. For permanent first lien finance, rates are currently in the 7% range for 10-year loans, with a rate reset in year 5.

The construction loan converts to a permanent 10-year loan once the Certificate of Occupancy (C.O.) is issued. The loan is priced to a spread over LIBOR and a 25 to 30 year amortization with a rate reset at year 5.

Note, SBA 504 transactions require a personal guarantee and a 20% equity contribution. The structure also include a prepayment penalty if the loan is pre-paid in the first 5 years.

Other Considerations and Costs:

- 1.5% to 2% origination fee

- Construction loan administration fee

- SBA fee of 50bps

The SBA Approval Process for Hotel Financing

- Submission of tax transcripts for the borrower and guarantors

- Personal Financial Statement provided by individual guarantors

- Third Party Reports for: Appraisal, Feasibility and Environmental Phase 1 (Phase 2 if required)

Role of Kligier Capital

Kligier's Hotel Debt Advisory group has the proven ability to deliver the optimal financing solution that supports clients’ long-term strategic objectives with extensive experience across real estate asset classes, geographies, and capital requirements.

We provide focused advisory services to assist clients with objective advice and leverage our deep relationships with lenders across a full range of capital options including LP equity, Co-GP equity, first lien, second lien, high yield and mezzanine.


We run a highly efficient process structure focused on upfront preparation to reduce the burden on management teams & financial sponsors and maximize efficiency and results.

 

Working with the SBA to Finance Hotel Acquisition & Construction

 

$4,100,000 - Asia PE Fund
Secondary

$8,600,000 Multifamily
Fairfax VA, Pref Equity 

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$205,000,000 NY Office Tower
Acquired for Family Office

$32,500,000 Industrial
New Jersey, Refinance

$7,700,000 Retail
Stockton, JV Equity 

$8,800,000 Logistics
Boston, JV Equity 

$21,400,000 Bulk Condo
Miami, Acquisition

$12,700,000  - European

RE Fund - Secondary

$72,000,000  - Stalking Horse

Distressed Retail Portfolio

$5,100,000  - Asia  PE Fund

Secondary Advisory

Transactions

Private Equity Secondaries Advisory

$8,600,000 Multifamily
Fairfax VA, Pref Equity 

Industrial warehouse mortgage finance

$32,500,000 Industrial
New Jersey, Refinance

$12,700,000  - European

RE Fund - Secondary

1450 Broadway Investment Sale Advisor
Industrial Logistics Mortgage Finance Boston
Multifamily Capital Advisor
Commercial mortgage finance
Real Estate Boutique Investment Bank
Surplus Real Estate Disposition Advisor

$205,000,000 NY Office Tower
Acquired for Family Office

$7,700,000 Retail
Stockton, JV Equity 

$8,800,000 Logistics
Boston, JV Equity 

$21,400,000 Bulk Condo
Miami, Acquisition

Private Equity Secondaries

$72,000,000  - Stalking Horse

Distressed Retail Portfolio

$5,100,000  - Asia  PE Fund

Secondary Advisory