Pari Passu Financing Closes for a Central Florida Hotel

Our clients set out to buy two Florida hotels at once, both out of a receivership sale. This is the first of the two: a select service hotel carrying a national flag. The second, a conversion, closed two weeks later.

Buying out of receivership rewards buyers who can move with certainty. The seller is a court-appointed receiver, timelines are set by the process rather than negotiated, and financing contingencies get very little sympathy. Our clients needed a lender who could underwrite two hotel acquisitions in parallel and commit to both.

The purchase also came with a substantial renovation. The property required a $2 million property improvement plan, with the brand standard pre-approved before closing. A hotel under renovation does not produce the cash flow a stabilized one does, so the loan had to carry the property through the work rather than assume it would perform from day one.

The structure did that in three ways. First, a pari passu split: a $5 million SBA 7(a) loan alongside a conventional loan, funding together and sharing collateral, which delivered more proceeds than either program could have on its own. Second, an eighteen month interest-only period ahead of a 300 month amortization, so payments stay light through the renovation. Third, a funded interest reserve, money set aside inside the loan to make the payments during the year the property is being rebuilt.

The total came to just over $6 million, and the deal cleared both the lender’s loan committee and a size-triggered board review to close on its target date.

Krishan Patel, Managing Director of GRP Capital, stated, “Our clients had a clear plan and the experience to execute it, and the job was to build a structure that gave the property room to be renovated before it had to perform. The interest reserve is what makes a deal like this work. Without it you are asking a hotel to service full debt while half of it is out of service. Getting the brand’s approval on the renovation before we closed took the biggest unknown off the table for the lender.”

A hotel purchase that comes with a major renovation is underwritten differently from one that does not. Here is what buyers should understand going in.

Financing a Hotel Purchase With a Major Renovation:

• Expect the lender to underwrite two properties: They are looking at the hotel as it is today and the hotel it will be after the work. Both matter, and the gap between them is where the structure gets built.

• Ask about an interest reserve: If the property will be partly out of service, funded interest inside the loan covers the payments through the disruption. It is the single most useful tool for a purchase-plus-renovation, and it has to be sized at closing, not requested later.

• Understand pari passu: Pairing an SBA loan with a conventional loan that funds alongside it lets a deal reach a size neither program supports by itself. The two loans share collateral and close together. It adds coordination, and it opens up deals that would otherwise not get financed.

• Get the brand’s approval before you close: A renovation scope that the franchisor has already signed off on is a known quantity. One that is still under discussion is a risk the lender has to price, and they will.

• Do not underestimate a receivership timeline: Court-driven sales move on their own calendar. Have your financing genuinely ready rather than merely likely, because there is rarely room to extend.

Why Choose GRP Capital?

Our GRP Capital team specializes in crafting financing solutions tailored to each client’s unique goals. We even have experience with lender dropouts and critically timed funding needs.

Whether you’re purchasing, refinancing, or building from the ground up, our extensive network of lenders ensures you’ll find funding that aligns with your goals and cash flow needs.

Here’s what sets us apart:

• We save you time by researching and identifying the best funding options for your project.
• Our expertise spans various loan products—including non-recourse loans, SBA loans, bridge loans, and conventional financing—so you can navigate even the most complex transactions confidently.
• Beyond lending, we provide strategic guidance on operational decisions that drive long-term business success.