Lender Claiming To Finance 90% Of Hotel Acquisition?
Ok so I honestly am so confused. Ive been in the acquisition space for some time but never seen anything like this.
We're in the middle of acquiring a hotel and we tried reaching out to some lenders, but wasnt getting much interest. However, we had this one guy reach out to us. He said they will finance 90% of the acquisition (assuming it matches appraisal of course). The interest rate is 4.15%. Its non-recourse with no prepayment penalty. I didn't believe him at first since its not a traditional bank. In fact they have no branches. Also doesnt help he has a yahoo email address and website that is down. I was thinking this is a scam, but this guy isn't even asking for any funds up front, he said the loan fee will be paid at settlement. Loan fee is .5%.
I pushed the guy a bit and tell him what he says sounds too good to be true. He explains they originate the loans and then sell them in the secondary market. They are not loan brokers but are directly lending from their balance sheet and after closing they get all their funds back after the sale on the secondary market. However, this company maintains the servicing side of loan even after the sale. I understand this part, but who is buying 90% LTV loans in the secondary market at a 4.15% rate on a hotel?
For those in the lending space, does this actually exist? The guy has provided a commitment letter already and I am just having a hard time believing it.
A 4.15% rate seems too good to be true for a 90% LTV hotel rate. I think you'd be in the low 4's + .15 point libor floor for something around 65-70% for a good hotel... Without knowing their capital sources it does seem like there's something fishy.
Ask for references. This is not an unusual ask at all before doing a deal with someone who is not as well known.
I agree it sounds fishy af. Even if he gives you the funds, it’s not like the potential for problems stops there.
From the complete ignorance, what could go wrong after that?
There are lots of things that happen during the life of a loan. Loan modifications, paying down principal, draw requests, reporting requirements, covenant breaches, cures for covenant breaches, etc.
They could make any of the above a bigger pain in the ass than they need to be
Sounds scammy. Ask flying for a list of loans they’ve closed and look them up on title.
Ask to see his FINRA registration. Even though you don't need SEC registration to sell loans to QIBs, I think you still need to be FINRA registered. Also ask him where he gets his capital. Check to see who is attorneys are and check the registration of his company (see how long it has existed etc.)
Sounds fishy...but for all you know this person represents capital out of Europe in a country with negative returns and so a 4.15% yield is great for them. We really don't have enough information here but just diligence the person. Does this person control discretionary funds? From what you've said, it doesn't sound like it. Which means this person could just be blowing smoke and than will either retrade you or not close...and that screws your acquisition. Ask to see his security licenses and pull transactions he has completed in the past.
I work in the financing side in Europe in a debt fund,
Even good hotels are hard to finance and with LTV usually below 50% currently (for continental Eurupe). And margin are around 3.0% (or more)
This sounds to good to be true to be honest!
There is no reason any lender would need to go to 90% LTC on a hotel. They could be covered up in business on much lower leverage and better terms if they wanted to.
I agree it’s BS. Only way they are lending you 90% LTC/LTV. Is if they don’t believe your business plan and are actually loan to own vultures. Perhaps they see a better highest and best use for the site and think they can flip it. Doubt it though, as they would probably still be underwater.
Possibly is layering a PACE loan on the capital stack which replaces mezz above the senior note. I worked on a Kimpton development prior to Covid blowing it up, and it used one and got us to a LTC of 85%
We have recently encountered something similar. It was a scam, so I would avoid them if I were you just to be on the safe side.
Run for the hills my man, not real.
IMHO, it seems to good to be true. I'm going to put my money on this is a loan to own shop.
However, lending 90%on current appraised values wouldn't be bad. They could be anticipating a return on the lodging sector.
Or a combo of my two assumptions.
"non-recourse" until you see the loan docs
In the past (like pre-08 days), you would see crazy loan terms advertised but there was often a caveat... like 90% of appraised value, determined by our appraiser. Then there appraisal would come in about 70% of an actual market value, and they would offer you 90% of that. The trick was some of these lender requested big loan fees (non-refundable of course) to do the "due diligence" and this "appraisal". Then the borrower would say no to the loan, as way below value (and at still shitty rates), and the lender would keep the fees (which could be in the 100s of thousands literally).
No idea if this is case here, but I remember hearing stories of borrowers taken by things like that.
The guy said we have need an appraisal done, but through a major brokerage firm like CBRE or JLL. I asked him about 10 times if there are any upfront fees or costs and he said just to pay their 50 bps fee at settlement. Thats why I am thinking it all sounds way too good to be true. My feeling is that they claim up to 90% and then change the terms later in.
since you are posting anon, throw the name of the lender up here, someone may have direct experience!
Seriously, I'd look to talk with an actual borrower who has closed a loan with this group.
RUN
Yahoo is the red flag for me. If they’re backed by legit capital they’re not going to be doing their business off a free email account. Even if they were pitching it at a sensible LTC and pricing it would put me off dealing with them.
Thanks a lot for sharing this information. I am also looking for someone who can just provide me hotel loan to run my hotel. Due to covid I am facing a lot of financial crises.
Late to this but I'm guessing this is either a guy playing fake business or looking to scam you. If you're at a publicly listed company he might be trying to market manipulate it's stock price up. Alternatively, he'll ask for a "break up fee", and once/if he gets that proceed to break up.
Or maybe he just likes the attention and this is just a prank/joke.
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