Financing Hotels with Bridge Loans
As a leading specialty real estate finance firm, and member of the Asian American Hotel Owners Association (AAHOA), Bloomfield Capital provides direct capital for commercial transactions nationwide. Private money can be used to fill a variety of needs within in the hospitality sector.
Depending on the use, private money can be structured for hotel financing in many different ways including short-term debt (bridge loans or mezzanine loans), equity investments (joint-venture, preferred equity, or direct acquisition), or through the direct purchase of an existing note.
For hotels, private money can be utilized to refinance existing debt, fund the acquisition of a new property, resolve a bankruptcy, buyout an existing partner, recapitalize, or to rehab/redevelop/or reposition the asset.
When evaluating hotel financing opportunities, Bloomfield Capital looks for sponsors that have experience with the industry and the specific market where the asset is located and a clear exit strategy. The Bloomfield investment team will typically underwrite the real estate first and the borrower second. The ideal market for hotel opportunities is one that is not over-saturated with hotels from every flag and that contains strong demand drivers such as airports and convention centers. These markets are often less prone to economic downturns and make them attractive targets for lenders and investors. Hotel bridge loans often contain capital for renovations and/or a process improvement plan (PIP). Other hotel bridge loan characteristics include a short-term, typically between 6-36 months, personal guarantees, and shorter closing windows. For hotel financing, borrowers can benefit from working with private lenders and investors because they have the ability to structure deals that banks cannot entertain due to regulatory or time constraints.
Bloomfield Experience, Hotel Portfolio Financing
Bloomfield and a partner purchased four loans secured by four limited service hotels in Connecticut, Ohio, Georgia and Michigan from a large hedge fund.
The properties totaled 350 rooms. The loans were originated between 2005 and 2010 by a regional bank and were acquired for $11.5 million, representing a ~40% discount to the outstanding balance of $18.0 million. The sponsor contributed $1.5 million in cash, with Bloomfield funding the remaining $10.0 million. Bloomfield’s sponsor had the option to buy back the four loans over the subsequent twelve months. The sponsor worked with the existing borrowers on each asset to resolve each loan with its respective borrower. The combined collateral was ultimately resolved for a value of over $16.0 million