April
24, 2009
Scientific Capital arranges a 3 MM USDA loan for the acquisition of the
Comfort Suites in Michigan. The financing is an adjustable loan with 30
year amortization and 10 year maturity. The project was financed as 80%
Loan to Cost (LTC) through the USDA loan and 5% through seller
carryback for a total of 85% LTC. USDA required a 25% tangible balance
sheet equity for this project.
The Michigan USDA is very selective in guaranteeing hospitality loans
and is reducing its risk exposure by lowering the guarantee level to
70% and increasing the minimum tangible equity balance sheet
requirement for a hotel acquisition to 25%.
The strength of this project stemmed from the financial strength of the
borrower and the solid historical cash flow of the hotel even during
the current economic downturn. The challenge was the borrower will not
be an operator, a major negative for hospitality financing in this
turbulent hospitality market. Lenders want to assure that the
principals are hands on and have the experience to combat the upcoming
economic challenges. USDA does allow investment financing as opposed to
SBA that limits financing to owner operators.
In general USDA loans are probably one of the most cumbersome financing
vehicles and should probably be used as the last resort. With the
upcoming new Recovery Act SBA provision to guarantee the first trust
deed of the SBA 504 loans and the current provision eliminating fees,
leveraging an SBA loan while the Recovery Act budget is available may
be the most viable option.
|
|
