Construction Loans

Hotel Construction Loans

Do you want to build a new hotel from the ground up? Most lenders do not make these types of hotel construction loans, but we know the ones who do. We can assist you with this by providing either permanent or short-term bridge financing, based on the circumstances. Many different loan products are available for this purpose, such as Government Guaranteed, Conventional, C-PACE, Preferred Equity, Mezzanine, and Bridge. We can assist you to decide which loan product is best for you to employ to achieve your objectives, and then we will arrange that type of financing for you.

Holiday Inn Express photo

What financing products are typically employed for hotel construction projects?

Hotel investors employ different types of debt and equity financing products to create the capital stack which is used to fund the construction of hotels.  We offer many different financing options to our customers.  Two of the primary differentiators between financing products is your choice between low lender fees or high loan-to-cost ratio (lower cash equity injection) and then your choice between a fixed interest rate or a floating interest rate.  Additionally, sometimes you may have a choice between a personally guaranteed recourse or a non-recourse type of loan. 

Government Guaranteed Loans

Through our expert knowledge of the loan programs developed by the United States Small Business Administration (SBA) and the United States Department of Agriculture (USDA) we assist hotel investors nationwide to obtain very attractive financing for their businesses.  These government programs provide senior construction-through-permanent loan type of financing.  If you are searching for a long term loan with a 20-30 year term and a 20-30 year fully amortizing payment schedule with up to 85% loan-to-cost ratio and a reasonable rate of interest, you should consider the new and improved loans offered through the SBA, as well as the USDA (in rural areas).  Loan amounts for these types of loans can range up to $50,000,000 and are available for any type and size of hotel or motel— franchised or independent. The reason these loans are called government guaranteed loans is because if the borrower defaults on this type of loan the federal government will reimburse/pay the lender up to 70-80% of the amount of any losses of their principal. This guarantee gives the lender a much better comfort level with and thus a higher probability of approving your loan request than would be the case without such a guarantee.  The lender typically requires the owners of the company to personally guarantee this type of loan. 

 By utilizing SBA’s 504 Green Loan Program a single hotelier can obtain multiple SBA loans for multiple “green friendly” hotel construction projects with no limit on the lender’s 1st mortgage; thus, there is no limit on the size of these projects as long as they are financially feasible. In many cases, qualified borrowers with projects exceeding $20 million can still obtain up to 85% financing.

 By utilizing SBA’s new 504 Green Loan Program there is no limit on the number of SBA 504 green projects allowed to each borrower which means that business owners looking for additional 504 financing may be eligible even if they have committed or outstanding SBA loans. This means funds for this program are not limited by the SBA’s usual aggregate lending limit of $5 million per borrower, which means business owners who previously reached their SBA maximum now have the ability to receive additional SBA loans.

 Conventional construction-through-perm loans

Conventional loans are mortgage loans secured by a senior position lien that have traditionally been made from banks and credit unions although today private equity debt funds and mortgage REITs are increasingly making these types of loans.  Conventional loans have a set term and amortization of up to 20 years and typically offer a fixed interest rate for long term permanent loans.  For construction projects the loan-to-cost (LTC) ratio of conventional loans is typically in the 60-70% range.  These loans are made with funds directly from the lender’s balance sheet and are typically held on the lender’s balance sheet for the duration of the loan.  They are not backed by any government agency in case of borrower default.  These loans usually have the most favorable interest rates and repayment terms for borrowers and the least amount of fees, but they are the most difficult to obtain.  The lender typically requires the owners of the company to personally guarantee this type of loan. 

Preferred Equity and Sponsored / Direct / JV equity

At the other end of the hotel capital stack opposite the senior mortgage loan is located equity, which is divided into two types–preferred and sponsored (which is also known as common, direct, or JV equity).  Equity has the highest returns for investors because they get paid last in the case of the failure of the business, and therefore they have the highest risks, and they are compensated accordingly. 

 The fundamental difference between preferred equity and sponsored equity is that the preferred equity generally has a minimum return requirement, and they get paid a minimum return first, and then the sponsored, or common, equity gets whatever is left over.  The sponsored equity, on the other hand, is entitled to the highest returns. Because they are paid absolutely last, after all the other capital stack participants are paid, they get the highest return.

 Mezzanine loans

 In the capital stack between mortgage debt and equity is located “mezzanine” debt.  With its origin in the Latin language, the word mezzanine means “in the middle.”  Mezzanine funds generally constitute no more than 20% to 30% of the total capital stack, and the owner of the property generally sees obtaining mezzanine debt as a substitute for giving up ownership equity.  Mezzanine debt may be a desirable substitute for equity because it is slightly less expensive than equity, and you do not have to take the mezzanine lender on as an equity partner.  Mezzanine loans generate significantly higher returns (have higher interest rates) than mortgages.  In the event of a borrower default they are paid second, in the middle, after the senior and junior mortgage holders and before the equity investors.  Thus, their risk and reward is in the middle.  They have moderate returns and moderate risks in exchange for being paid after the debt capital but before the equity capital. 


Commercial Property Assessed Clean Energy (C-PACE) is a state policy-enabled financing mechanism that allows building owners and developers to access the capital they need to make energy related deferred maintenance upgrades in their existing buildings, support new construction costs, and make renewable energy accessible and cost-effective.

C-PACE makes it possible for commercial property owners to obtain low-cost, long-term financing for ener­gy efficiency, water conservation and renewable energy components of a new building. Hotels qualify for C-PACE financing.  C-PACE can be used to pay hard, soft, and associated costs connected to mechanical, electrical, plumbing, building envelope and renewable energy sources. Examples include HVAC, LED lighting + facility controls, boilers, windows, and solar.

 The program starts with a state-level government policy that classifies clean energy upgrades as a public benefit – like a new sewer, water line or road.  These upgrades can be financed with no money down and then repaid as a benefit assessment on the property tax bill over a term that matches the useful life of improvements and/or new construc­tion infrastructure (typically ~20-30 years). The assessment transfers on the sale of the property.  While facilitating sustainability efforts, the program reduces property owners’ annual costs and pro­vides dramatically better-than-market financing for “green” elements of a new construction project.


EB-5 refers to a program that is authorized by Section 203(b)(5) of the Immigration and Nationality Act.  Its name derives from the fact that the EB-5 regime is set forth in the fifth subparagraph of the “Employment-Based” immigration programs provided in Section 203(b). EB-5 offers an expedited visa processing for foreign investors making a minimum required investment in a project that creates at least 10 new jobs in the United States.

 Thus, EB-5 is both an immigration program giving wealthy immigrants the opportunity to earn a “FastTrack” to US citizenship, and a source of financing for new enterprises that provide communities the benefit of economic development created by investment and new jobs. This financing or investment must be made in qualified projects, and developers are often able to execute a new development with the EB-5 capital when they could not otherwise complete their capital stack.  EB-5 has incentives to develop infrastructure and other projects located in a “rural area” or an “area of high unemployment” designated by the Secretary of Homeland Security (a qualifying rural or high unemployment area is called Target Employment Area or “TEA”). Incentives include a reduction of the minimum investment from $1,050,000 to $800,000 for a project located in a TEA.  Additional incentive is provided by offering prioritized processing with United States Citizenship and Immigration Services (USCIS) for rural projects.

 The critical requirement is that the minimum number of 10 new US jobs for each investor will be created within a specified period of time. However, in order to raise money from foreign investors, the project must satisfy the investors’ need for certainty that the project will be completed on time and create the necessary jobs so that the EB-5 investors will obtain their green cards. Secondarily, the project must also be attractive from an investment standpoint, providing a high degree of comfort that it will be able to repay the investment in 5 to 7 years (whether the EB-5 financing is structured as debt or preferred equity).

 Analysts estimate that up to 70% or 80% of all EB-5 investors select real estate-related investments, particularly those that create a large number of new US jobs such as hotels, restaurants, night clubs, resorts, hospitals, and senior living.

 Construction-Only Loan

 This type of short-term bridge loan can be used to fund the construction phase only.  It must be repaid once the certificate of occupancy for the building has been issued.  This course of action can be problematic when a permanent lender cannot be obtained once the construction has been completed.  The interest rates, fees, and repayment terms of such loans reflect this inherent risk.

a graphic of an example of a capital stack

How can Spirides Hotel Finance Company assist with my new hotel construction project? 

Spirides Hotel Finance Company provides exceptional service to hotel investors who want to build new hotels.  Depending on each investor-developer’s level of need and preferences we stand ready to assist him/her with literally all aspects of new hotel development. 

 As one of the nation’s leading hotel construction financing providers we are routinely in contact with dozens of different sources of capital around the country to negotiate and arrange the best financing terms available for our customers.  Once our services are engaged we work closely with our customers to collect all the required documents necessary to put together a very complete, accurate, detailed, and compelling loan application package to present to dozens of capital sources.  After our capital sources report back to us on their level of interest and specific financing terms for each financing opportunity that we introduce we notify our customers of our capital markets canvassing results and then present to them all the different available financing options, explain the differences, and assist them to decide which financing option would be best for them to employ to achieve their financing objectives.  We work hard to obtain the lowest interest rates and lender fees and most favorable terms and conditions possible for our customers. We stay involved in every step of the process up until the transaction is closed and funds are disbursed. We do everything in our power to facilitate and expedite the closing process with each customer’s new source or sources of capital. We earn and are paid our fees only upon the successful closing and settlement of each transaction we arrange.

 We have decades of experience in the hotel industry, and we have established quality contacts in virtually all of its segments.  Therefore, in addition to providing all the financing needed to build a new hotel through our nationwide network of hotel construction lenders and other sources of capital, we can also introduce our hotel investor-developer customers to highly respected and experienced hotel architects, general contractors, management companies, sources of furniture, fixtures and equipment, sources of operating supplies and equipment, valuation and feasibility study consultants, hotel lawyers, hotel brand franchisors, payment card processing companies, insurance companies, and construction management consultants.

What things are considered when I apply for a hotel construction loan? 

Many qualifying factors are considered and a lot of documentation is reviewed by lenders when they underwrite a new hotel construction loan application.  It is a good idea for borrowers to know about these factors and the list of required documentation prior to beginning the loan application journey so they can manage their own expectations and submit the most complete and compelling loan application package possible.  This will give their loan application the highest possible chance of being approved by the lender.  Spirides Hotel Finance Company only presents complete, accurate, and very detailed loan application packages to lenders for their consideration.  By doing this, it greatly reduces the chance a lender is misinformed so they will not come back later in the process and change the terms that they originally quoted to the borrower to less favorable terms.  Sometimes lenders will do this after borrowers pay their large due diligence / good faith deposit.  This can happen for example when the loan underwriters do not receive a complete, accurate, and detailed loan request package containing all finalized project construction cost or FF&E / OS&E amounts prior to the beginning of the underwriting process.  When lenders receive inaccurate and incomplete information from borrowers it can delay the process and sometimes result in a loan denial.  This is why we ask a lot of questions and request a lot of documentation at the beginning of the loan application journey and before the lender’s formal underwriting begins. 

Some of the qualifying factors important to hotel construction lenders are:

  • Amount of cash the borrower has available to invest in the project as well as the amount of post-closing liquidity
  • The location of the proposed hotel
  • The overall development cost
  • Local area hotel business demand drivers
  • The amount of hotel management and hotel development experience of the investors.  If the lender believes the investors do not possess an adequate amount of hotel industry experience, then they might require an independent third-party hotel management company be contracted to manage day-to-day operations of the hotel.
  • The hotel brand franchise proposed
  • The immigration status of the investors to determine if they qualify for certain government guaranteed lending programs
  • Return-on-investment analysis, local market supply and demand analysis, 10-year proforma profit & loss statement.  These items are included in the feasibility study which should be ordered and received before beginning the loan application process because 1) Why continue with the loan application if the project is not feasible? 2) It is used to convince lenders to make the loan by highlighting all of the positive aspects of the project as well as doing most of the lender’s analytical and investigative work for them.
  • The “as-complete” and “as-stabilized” valuation of the property.
  • The background of the investors including FICO scores, total available liquidity, net worth, debt-to-net worth ratio, global debt service coverage and cash flow analysis of all affiliated companies, tax liens, bankruptcies, criminal arrests, civil judgements, loan defaults, and real estate short sales to name a few areas of focus.
  • The background of the real estate including environmental, Geotech, historical preservation, and archeology to name a few elements.
  • Qualifications of the General Contractor
  • The terms of any land loan that was obtained to purchase the land.

Some of the documentation that is required by hotel construction lenders includes:

  • Resumes of each owner/investor of the borrower company who owns or will own 15% or more of the company.
  • Personal Financial Statement—each owner of the borrower company who owns or will own any percentage of the company must submit a current personal financial statement (signed & completed within the last 60 days). 
  • Personal Credit Report of each owner of the borrower company
  • Business Debt Schedule(s)—This schedule should be completed for each separate business entity that each owner of the borrower company owns 15% or more of and which has commercial debt. 
  • Last 3 years business federal income tax returns of the borrower company and for each separate business entity that each owner of the borrower company owns 15% or more of. 
  • Last 3 years individual federal income tax returns for each owner of the borrower company who owns or will own 15% or more of the company. 
  • Real Estate Purchase and Sale Agreement – if land is being acquired as part of the transaction.
  • Franchise Agreement (fully executed copy)
  • Construction Detailed Cost Estimate produced in writing by the General Contractor
  • FF&E Quotation/Proposal–produced in writing by the FF&E supplier.
  • OS&E Quotation/Proposal–produced in writing by the OS&E supplier.
  • Feasibility and Market Study–produced by a nationally recognized independent third-party, hotel industry expert consulting firm such as HVS.
  • List of Project Costs & Expenses Already Paid by Owners Cash Equity
  • Architectural plans and conceptual drawings.
  • Borrowing company’s legal formation documents
  • Proof of Available Funds for the owners equity injection