Planning every step when refinancing a hotel will lead to a much better outcome for borrowers and their brokers. Here are some key things to consider.
Let’s face it, refinancing a hotel causes far more headaches than it should. Someone ought to remind lenders that it’s 2019. But they wouldn’t listen, so borrowers and their advisors are unfortunately left to suffer the brunt of an antiquated and human-centric system.
Planning every step from initial underwriting through closing, addressing potential hurdles upfront, using technology where possible, and aligning large teams helps reduce, but not avoid, massive headaches.
Knowing all the steps to close a deal helps. Most participants broadly know the steps, but breaking each step into an actionable “to do” with a strategic plan is key. Everyone should have this joint to-do list. Going from presenting a refinancing opportunity to signing the settlement statement is a 60-day process with at least 100 actionable steps.
Borrowers and their brokers should anticipate each step to avoid problems, which always come at the end. For example, before an appraiser makes a site visit, ensure you have quantifiable proof that new supply will not hurt your hotel. Before the property condition report is issued, ensure there are no visible physical issues at the hotel. Before a property improvement plan is reserved for, ensure you know how much it will cost, when the money will be spent and all of your options for reserving for this expense. Planning for hundreds of upcoming sequential events at once isn’t easy, but experience and organization will eventually save needed brain power for the more important task of managing your hotel.
Potential hurdles must be identified early on and addressed. Lenders do not address hurdles in a borrower-friendly manner. To save the hassle, identify every hurdle upfront, from zoning issues, borrower issues, market issues, structural issues, insurance issues, renovation issues and more.
Generate a plan for addressing these issues before refinancing your hotel, or present your lender with three options for rectifying each one. Never leave an issue to be handled by a lender and always disclose issues upfront. The outcome will not be in your favor otherwise. Knowing what will be a hurdle is half the battle, and requires deal experience and knowledge of the property and borrower.
Every deal ends up involving at least 30 people, which unfortunately includes a bunch of lawyers. These 30 people are usually working on 10 deals at a time, yet their collaboration on your deal must be efficient in order for sequential activities to occur on the proper timeline. Know who everyone is upfront and have large group calls, frequently, to ensure that everyone is doing what they should, on time. Make clear that the deal is not a “one off” and that timely performance of deliverables will impact each person’s invitation to work on the next deal. Know what everyone has to do upfront, and in what order, and pester everyone as often as needed. Pay special attention to lawyers since they often make or break deals. Use deal-friendly attorneys. Ensuring a smooth human process is the biggest battle in closing a deal. Find the right people and recycle the team to avoid double brain damage on the next deal.
Lastly, use technology to your advantage. Cloud file sharing helps collaboration a lot. Each deal results in thousands of pages of documents, with revisions back and forth, and various participants with differing needs. Keeping an organized cloud sharing location available helps the process. Technology can also assist with market data, research, scheduling and communication. Use every tool at your disposal, and ensure that your lender will too, otherwise expect frustration.
There is no avoiding the irritation associated with refinancing a hotel. It is effort that seems unnecessary and it costs money at each phase. Taking steps on the human side and technology side can help, as can experience in planning and issue avoidance. Work with people who know how to do this stuff. The good news is that once your deal closes, you usually don’t need to think about it for another 10 years.
Zak Selbert is the founder and CEO at Vista Capital Company. Vista is a boutique real estate investment banking firm that specializes in arranging financing for hotels. Mr. Selbert can be contacted at 310-285-3803 or firstname.lastname@example.org.
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