Financing the purchase and PIP of a Hotel Conversion with Projections in Maryland
Holiday Inn Conversion to Ramada Inn
Scientific Capital arranges a 2.7 million loan for the acquisition of the full service Ramada hotel (previously Holiday Inn and converted to Ramada) in Cumberland, MD. The hotel was taken back by the lender in lieu of the foreclosure. Due to the fact that the hotel financial were not available or reliable, Scientific Capital was able to obtain other historical financial information to satisfy the underwriting requirements and to complete the transaction. The choice of the documents as proof of income in these cases depends on the loan program used and the choice of the lender.
In the majority of cases where a hotel is being purchased from a lender, the hotel does not cash flow, does not have historical information, and a lender-hired management company operates the hotel with focused only on keeping doors open until the hotel is sold. To finance any hotel that is owned by a lender, lack of three years of tax returns of the hotel can be compensated by gathering other legal documents from many other sources but at the minimum, the hotel has to be proven to cash flow for the proposed loan amount, probably at an attractive debt coverage ratio which in turn translates to a higher CAP and lower purchase price. It also requires the sponsors to have alternative sources of income and cash flow.
The financing that was structured at 76% Loan to Cost included $400,000 of PIP (Property Improvement Plan issued by the franchisor). The high LTC was a significant achievement considering the challenging parameters of this transaction including the fact that the guarantor was a first time hotel buyer.
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