IPC/Lodging Finance recently arranged financing for the purchase of an independent hotel located near the southern gate of Yosemite National Park on highway 41. There were three distinct challenges to this transaction; 1) the seller’s operating expenses were exceedingly high; 2) the buyers had limited funds for down payment; and 3) underwriting was dependent on 5 years of income and expense projections.
Our analysis determined that the seller’s historic expenses were far above the norm, and could be significantly reduced with better management. The buyers are experienced and own another hospitality property an hour away. We looked at research on traffic counts and verified that almost half of all visitors to Yosemite pass by the property annually, and a high percentage of those are foreign travelers. This last point was the key to our success as we had uncovered a little-known lending program that promotes business with foreigners.
We then packaged and presented the case to several banks with good reputations for lending on hospitality properties. Most passed on the opportunity citing reasons such as location, seasonality, poor historical performance, no brand affiliation, and too little down payment. However, one of our institutional lenders embraced the project and this peculiar loan program, which provided the bank a higher level of comfort and confidence, and it approved a loan of $3,000,000 (88% of the purchase price). The deal funded this month.
I am happy to report that with this program the borrowers were able to retain better post-closing liquidity, which they are now using as working capital to implement their business plan. Next time you go to Yosemite, please visit Narrow Gauge Inn located in Fish Camp. And next time you or one of your clients is looking to finance a hotel, contact Mark Skolnick for a confidential discussion of your project.