Category Archives: Hospitality

Transitioning from Owner Financing to Traditional Financing

Many of our clients come to us seeking traditional financing. Some clients have loans that are owner financed or seller financed. These can be convenient loans, but can be a bit too personal; it can be difficult to owe money to friends and family. In addition, traditional financing offers greater stability, government guarantees and even lower rates.

The entire GRP Capital team worked together to close this Florida hotel. We assisted the client to access traditional financing.

However, transitioning to traditional financing does require a bit of effort.

Preparing for Traditional Financing: 

• Take Care of Title:  Traditional lenders want to make sure there are no “clouds on title”. This means that the borrower will clearly own the property and nobody can make a claim to a portion of it. Especially if a prior loan took place without going through title, potential borrowers must address this. Find a reputable title agent and ask them to run a preliminary title report. If there are issues that need resolving, hire a real estate attorney and begin to address them.

• Bolster the Appraised Value: The appraisal process is critical, especially for properties that were not recently officially appraised. Shail Madhav collaborated with our clients to prove the value of the company. They tweaked business plans and budgets and even worked together on what to say when the appraiser came to inspect the property. All of this paid off, as the clients could justify the value of their property, including the loan to value ratio and future debt coverage.

•  Show Your Finances: Banks require clear, well-structured financial statements. These statements should include both Profit & Loss statements as well as Balance Sheets. If you or your accountant have not been regularly producing these, now is the time to take action. Prepare financial statements for the current year and the previous one to two years. Make sure the balance sheets match up with any loan statements or debt that you have.

How our client benefited:

Upon closing the loan, GRP Capital President Rick Patel stated, “ We were very pleased to close this loan for our client. The new loan gave him a lower mortgage payment and improved his cash flow. He now has more secure financing with government guarantees. The previous financing didn’t include either title work or environmental assessment. As a result, we were anxious to take those on. Now our client has a clear title and a clear environmental assessment. These accomplishments also added to our sense of security. Finally, the loan closed in time for our clients to take advantage of the latest stimulus package.  

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research  the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

Quick Closing Was Key for Central Florida Hotel

A quick closing was crucial to our clients. They had negotiated a purchase sale agreement (PSA) with the seller. This PSA stipulated a set time for closing. Any delays would require an additional fee to be paid to the seller. As a result, GRP Capital turned to our trusted lenders’ network. In our search, we emphasized the need for a quick closing. We already knew our clients well, as they were repeat customers. But the loan was still complicated with multiple partners, each with large business portfolios. It took a full court press from all of our GRP Capital team to achieve this fast closing.

GRP Capital President Rick Patel worked closely with the multiple partners and the lender to secure this complex, high value loan for our clients. Our clients now have a conventional loan with competitive rates. 

Keys to a Fast Closing: 

• Organized finances:  We had worked with the clients’ certified public accountant (CPA) before. As a result, we knew that he could obtain documents quickly. These included up-to-date financials for the borrowing entity and all of the partners’ affiliate businesses (if they owned 20% or more of them). We could not have achieved a quick closing without our partnership with the clients’ CPA. Disorganization can delay closings.

•  Motivated sellers: Some clients think that it is only the buyers that have to provide documents. That is not the case. Sellers also have to provide financials, including up to date business statistics. In addition, the underwriter requires independent confirmation of these documents, sometimes through sales tax receipts. If a business has a Small Business Administration Economic Injury Disaster Loan, the lender requires even more documents. Lenders typically request promissory notes and will require that EIDL’s be paid off at or before closing.

•  Organized Equity Injection:  GRP Capital worked with the partners to identify the best bank accounts to use for the equity injection. These accounts were “clean”, which means without large deposits from outside sources. Submitting equity information early in the underwriting process prevents delays.

Rick Patel remarked, “To be honest, this loan was a challenge. The clients had an abbreviated timeframe. But the combination of our long-term relationship with the clients and their professionals (lawyers and accountants) helped us achieve a quick close. Lots of communication and dedication to serving our clients were critical.”  

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research  the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.

New Owner Buys South Carolina Hotel

Our clients have just purchased a South Carolina hotel. This partner group of first-time owners found an underperforming property and purchased it with very good terms. They utilized a 21% equity injection and their loan covered all closing costs and included hefty working capital.

Senior Associate Ryan Dumas was very happy for our clients. Ryan remarked, “These clients had done their homework and found a South Carolina hotel, which was a strong property. However, this property wasn’t cash flowing. We were able to demonstrate to the lender how our clients would better manage the property. I am proud of the loan that we procured for these clients. I know they will be able to turn this hotel around and make it much more profitable in a very short time.” 

When a Property is Underperforming

• Do Your Due Diligence: One of the benefits of using our GRP Capital team is that we look at all of the documents we can to figure out where management has gone wrong. We study the market conditions, competitor performance (sometimes through STR reports), financials, hotel statistics  and sales/occupancy taxes. Our team advises our clients to purchase only if we think the hotel has the potential to become more profitable. We also encourage our clients to limit overly large earnest money requirements during the due diligence period.

• Make a Solid Business Plan: Potential buyers of underperforming properties need to quickly identify ways they would manage better. How would you improve the condition of he property? Its marketing? Its rates? What changes would you make in staffing and purchasing? Sometimes the answer includes being onsite more as absentee ownership and management can allow properties to flounder.

• Plan to utilize working capital and reserve funds: Properties that are underperforming often have had deferred maintenance or possess a tired appearance. It is wise to have a slightly larger loan if it includes working capital and funds for a PIP. It also makes sense to have cash reserves for initial costs upon taking over ownership.

Our GRP Capital team specializes in finding the right lender for each project. We save our clients time and money, as we research the best choices for their funding sources. Our experience allows our clients to find funding that is project-appropriate and will allow for sufficient cash flow. Whether you are looking to refinance or purchase, we would love to discuss your business plans with you. If you are considering becoming a first-time (or second or third time!) buyer, we can assist you.