Review of the non-recourse
CMBS Conduit hotel loan program
Rate: 2.00% to 3.0% over 10 Yr SWAP index or the 10 Yr Treasury
Minimum Loan: 2 million
Loan to Value: Up to 70% for hotels
Debt Yield: 11%+
The Debt Yield is probably the most examined parameter by the CMBS loan originators
Example of calculating Loan amount for a specific Debt Yield:
If the Net Operating Income (Before depreciation, interest, and amortization) is $800,000 and the Gross Revenue is $2,700,000, then the maximum loan at the Debt Yield of 10.5, FF&E reserves of 4%, and Management of 3% is calculated as follows:
Net NOI = NOI – FF&E reserves – Management reserves
Net NOI = $800,000 – Gross Revenue x 4% – Gross Revenue x 3%
Net NOI = $800,000 – $108,000 – $81,000 = $611,000
Maximum loan amount allowed by this Debt Yield = NOI/DY = $611,000/10.5% = $5,819,047
Debt Service Coverage Ratio (DSCR): 1.35
Reserves: 4% minimum for FF&E
The FF&E reserve is determined for each hotel depending on the hotel’s characteristics, age. Generally, the minimum reserve for the FF&E is 4%
Initial Deposit: $35K to $50K
Amortization: 25 to 30 years
Standard amortization is 25 but 30 year is available for stronger markets and newer hotels
Prepayment: Defeasance for 10 years
Costs: $67K to $80K on the average
Lender Estimated Fees and Costs | |
CMBS Originator Fee | 5,000 to 10,000 |
Service set up fee | 0 to 350 |
Site visit and inspection | 200 to 2500 |
Regulation AB II review | 0 to 2,500 |
Search and Report Fee | 300 |
Appraisal | 5,000 to 12,000 |
Engineering and Environmental | 3,500 to 5,200 |
Zoning | 600 to 1,200 |
Insurance review | 2,000 to 2,500 |
Lien and credit searches | 1,200 to 4,000 |
Underwriting Fee | 8,000 to 15,000 |
Originator Legal Fees | 25,000 to 33,000 |
Appraisal Review | 500 |
Environmental Review | 400 |
Wells Fargo sweep account Setup | 2,500 |
TOTAL Estimated Originator Related Costs | 64K to 86K |
Other Expected Costs | |
Borrower’s Council | $5,000 to $20,000 |
Escrow and Title | Depends on the transaction, size of the loan, the market, etc. |
Escrow accounts | The Originator will escrow the taxes for the months remaining to the property tax due date. It also escrows certain number of months for the insurance premium. PIP is escrowed at 125% of the total estimated cost |
Rate and fixed term
Non-recourse
Procedures and loan documents
Assumption and transfer of ownership
These loans are assumable and the borrowers can have the buyer of their hotel assume these loans to avoid a the hefty prepayment penalty
Prepayment penalty
Originator fees
Upfront escrows
FF&E reserves
Cash management account or lockbox
Flexibility
Subordinate financing
Covenants
Customer service
Management company