Financing the Construction of Hotel with
Conventional Loan in South Carolina
Home2 by Hilton
North Charleston, SC
In general many hoteliers would prefer to place the lowest possible equity such as 15% to 20% of the cost into a new hotel construction project qualifying only for the SBA program. Additionally many lenders prefer the SBA program regardless of the Loan to Cost (LTC) to reduce the lender’s exposure. This has resulted in a lending culture where hotel construction financing and the SBA program have become intertwined in the recent years. In fact, many banks now only offer hotel construction loans through their SBA department. Conventional construction hotel loans are becoming more challenging to obtain specially in markets where many new hotels have been built or are being planned/developed. Charleston market in one of those markets with booming new hotel constructions projects where most lenders are either having a high concentration on hotels or are avoiding to fund a new one awaiting to see how the market stabilizes and if the large supply of new rooms will be absorbed by the expected high demands. Scientific Capital was able to obtain a conventional loan for this Home 2 hotel construction project at 75% LTC on a 12 million cost and at 60% of the appraised STABILIZED value. Upon the completion of the construction, the construction loan will then be taken out by the permanent five year fixed loan with a 20 year amortization. The low prepayment penalty allows the borrowers to have the option to refinance within a couple of years into a CMBS non-recourse loan.
Scientific Capital, as in all of its financing projects, actively coordinates the project communicating with the Hilton Design and Construction group for the approval of the plans, with the architect and the civil engineers, the city planning and zoning group for the speedy approval of the plans and permits, the third party vendors, and others parties to make certain that the project completes on timely fashion.
This project took a long time to complete mostly because we started the financing too early. Many unpredictable issues come up during the planning and franchise/city approval that causes delay. It is preferred if the underwriting takes place while the plans are being approved by the city which generally takes 3 to 4 months, just enough time to underwrite the loan, order appraisal and Phase 1 and get full approval.
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