2. Flagged vs. Unflagged Properties : A flagged hotel property is just a hotel that belongs to a countrywide franchise. An example of a flagged property would be a Holiday Hotel or a Best Western. For the guest, a flagged property provides the advantages of a uniform standard that’s defended by the franchisor.

A guest could stay in a flagged property on the east coast and could expect the same flag on the west coast to have the same standard of cleanness and facilities. The owner of the property gets the advantage of a national reservation system and promoting. For this benefit the operator is predicted to pay a franchise fee which can generally range anywhere from five pc to ten percent of room cash. Thanks to the benefits a flagged property has, most commercial banks like to finance them over an unflagged property.

Occasionally it can be very difficult to get a commercial loan for an unflagged property, particularly if the property isn’t in what is thought of as a destination resort area. An unflagged property in a destination resort is better to get a commercial loan on than an unflagged property in other areas of the country.

Exterior Corridor vs. Interior Corridor : An exterior corridor property is a hotel property where you can see the door to the rooms from the outside of the property. These are infrequently known as a motel rather than a hotel. The term motel is basically derived from the term motor hotel where most travelers would park their car straight in front of their room. While there are disagreements between what outlines a motel and what outlines a hotel, there’s generally little difference between the 2 outside of a banks perception.

Most exterior corridor properties are older and afterwards won’t have the standard of furnishings and will have more deferred upkeep than an interior corridor property.Financing Your Hotel Property : When attempting to get a commercial loan for your hotel property there are some distinct differences you may expect vs financing other commercial properties. A hotel property is considered special purpose in nature which essentially means that it is normally cost prohibitive to change it to alternate use. An office building or retail space can accommodate many kinds of companies whereas a hotel property can only accommodate a hotel. Due to this a commercial loan for a hotel is going to be considered riskier to the bank than a business mortgage for other general purpose property types.The loan to worth ( LTV ) for a hotel property will be lower than other general purpose property types.

For a limited service, flagged property 65% LTV is characteristic and that number can go down relying on the age of the property and whether its interior or exterior corridor. The LTV is just a proportion worked out by dividing the loan amount by the value of the property. The debt service coverage proportion ( DSCR ) for a hotel will also have to be higher than that of a general purpose property type. The DSCR is a proportion that determines the power of the property or business revenue re the suggested home loan payment. A common needed DSCR for a hotel property by a commercial bank is 1.30 which basically means that for each $1.00 in suggested mortgage cost there should be $1.30 available to pay it. For other general purpose property types the DSCR is lower. A DSCR of 1.20 is common for general purpose property types and can go stove lower for a less dodgy property like a residence building.