Hospitality

Ameet Chagan placed the 10-year, $5,475,000 refinance for a limited service Hampton Inn Hotel in central California. The subject offered limited operating history having opened year-end 2008, and is located in a tertiary market. Proceeds were used to pay off the current debt; there was no return of equity to the Borrower. The 5-year fixed rate will reset to 1.75% over the bank’s cost of funds years 6 through 10, and is amortized over 25 years. The Borrower will realize $375,000 in improved cash flow during the first 5 years of the term. Challenge: The hotel is located in a tertiary market with few comparable sales. Significant prepayment penalties pushed the loan request beyond the 70% LTV threshold, a level most institutional lenders will not exceed. The Sponsor depleted nearly all of his liquidity in the process of stabilizing the asset during the market downturn, and global borrower cash flow was less than satisfactory for many lenders. The Sponsor was in technical default on the senior loan due to unpaid supplemental property tax bills. The initial MAI appraised value was estimated $2,000,000 below anticipated levels, requiring additional cash to close. Solution: GSP identified a lender with an appetite for hospitality. The lender became comfortable with the property’s location and strength among the competitive set. Superior reviews posted on social networking sites supported ADR and occupancy proformas. The 2.65% reduction in the interest rate improved post-closing cash flow, dramatically improving the Borrowers’ global position. The bank agreed to allow the sponsor to pay supplemental taxes after close from refunded reserve proceeds held by the original lender. GSP diligently reviewed the draft appraisal and provided additional market information, supplementing the appraisers’ analysis. The original value was adjusted, but still failed to cover the needed payoff. GSP worked with the bank to take advantage of a State-sponsored insurance program that allowed for a higher LTV threshold. These actions allowed the lender to fund full proceeds, including all prepayment penalties.