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Hospitality – Hotel/Motel Loans


First Capital Trust Deeds (FCTD) is an experienced California-based mortgage broker focused on private lending and mortgages for real estate investors nationwide, including the hospitality industry. We’ve helped our share of hotel and motel owners quickly access short-term bridge loans to finance their properties, prior to selling or refinancing into institutional lending. FCTD has long-term business relationships with many private lenders, some of whom own numerous hospitality properties and run private lending divisions. These lenders have proved excellent sources of capital for our hotel/ motel owner-operator clients.

This article will cover many details that hospitality investors and owner-operators should know to make informed decisions on short-term bridge loans for their property. I’ll cover the following topics:

  1. What is a hospitality hard money loan?
  2. Why do hotel and motel owners use hard money loans?
  3. Examples of closed hard money hotel and motel loans
  4. General hard money pricing and terms
  5. Exit strategy: refinancing hard money into an institutional loan

What is a Hospitality Hard Money Loan?

A hospitality hard money loan is a short-term (12-36 month) loan secured by a hotel, motel, bed & breakfast, vacation resort or RV park. Hard money loans, also known as private money loans, are made by individual or non-institutional private mortgage lenders and debt funds specializing in short-term lending. The loans don’t require as much financial documentation as bank or institutional loans, which drives the pricing and closing costs higher.

Why Do Hotel and Motel Owners Use Hard Money Loans?

There are many reasons owners turn to hard money loans. Below are the most common scenarios FCTD has encountered.

Fast Closing

Hard money loans can close in as few as 24 hours. However, most take more time for due diligence. If a great property hits the market, an investor can gain an edge with an offer with proof of funds, plus an approval from a hard money loan with a 7-14 day closing.

Last minute financing when bank loans fall through

In purchase transactions, bank financing can fall through at the eleventh hour. The reasons range from problems with the property condition, financial details (property or sponsor), to bad lending markets when credit conditions deteriorate. When this happens, buyers can sometimes switch financing to a different bank – if the seller extends the closing timeline another 30-45 days. Some competing banks will drop everything to close in seven days to take a loan from a competitor. But that would assume the borrower and property qualify. If the buyer or property don’t meet institutional underwriting standards, they can pivot to a 12-36 month hard money bridge loan, until institutional financing is an option.

Acquiring an unfinanceable hotel or motel

If the property has high vacancies or needs a major renovation, some hotel owners will use hard money bridge loans until the property is renovated and stabilized with market-level occupancy and cash flows.

Second mortgages – access equity in the property

A hard money second mortgage can be used to access equity in a property. Long-time hotel owners can use a hard money loan as the down payment on a new hotel or motel. Or, if their existing first mortgage is maturing in 12-18 months, they may want to pull money out for major renovations, and pay off the first and second mortgages with a new first mortgage through an institutional lender.

Cross-collateral blanket loans

An owner-operator with multiple hospitality properties encumbered with debt can use a cross-collateral blanket loan to access cash to fund capital improvements, or acquire another property.

Reposition debt

If a loan matures while interest rates are rapidly increasing, a sponsor can be brought in to pay cash down on the balance during a refinance. This offsets the likely smaller loan amount – which is a direct consequence of higher interest rates. If an investor owns multiple properties, including some with significant equity positions, they can use a cash-out bridge loan to close on their cash-in refinance.

Prepare property for sale using short-term financing

Prior to selling, owners may renovate a property in order to market a turn-key hotel to a new buyer. Hard money loans are meant for this situation.

Partner buyout

Partnerships split all the time. Hotels can be owned by a group of investors. If an investor wants out of the partnership or has passed away, the remaining partner(s) can use a short-term bridge loan to pay out the former partner.

Examples of Closed Hard Money Hotel and Motel Loans

Since 2013, FCTD has originated several hospitality hard money loans for owner-operators in the hotel and motel business. Below are a few noteworthy examples:

$5 Million Combined Bridge Loans

A first and second combination loan were used to acquire a Los Angeles motel during the first few months of the COVID-19 pandemic. FCTD secured two private lenders, the first going to 60% Loan-To-Value (LTV) and the second going to 70% Combined Loan-To-Value (CLTV). Both loans had a 24-month term that allowed the new owner time to increase occupancy and cash flow as the economy opened back up. The loans paid off just prior to maturity on the 24th month.

$2.5 Million Bridge Loan for Palm Springs Hotel Acquisition

An experienced operator wanted to close quickly on a boutique hotel in the desert. FCTD secured a 65% LTV bridge loan that closed in 15 days and paid off five months later with bank financing.

$1.5 Million Bridge Loan for Lake Tahoe Motel

A new owner used 50% LTV financing for an outdated motel in the Lake Tahoe area. They planned to fully renovate the hotel to increase revenues and refinance into long-term debt.

$3 Million Second Trust Deed for Bay Area Holiday Inn

A 40% Combined Loan-To-Value (CLTV) on a cash-out second mortgage provided the owner with down payment funds to close on a land acquisition to build another flagged hotel.

Boutique Hotel Private Money Bridge Loan

General Hard Money Pricing and Terms

Hard money loan pricing can be all over the map. Since FCTD is a mortgage broker, we have numerous capital sources that will take on certain risks for a price that meets their expected rate of return. Some lenders like low-leverage loans at 50% LTV or less, and will have a lower pricing structure to match. Others with a higher risk tolerance will finance a 70% LTV loan, and charge more for upfront points and a higher interest rate.

You can expect to see some or all the closing costs, terms and fees below:

  • Interest Rate: The range of interest rates is 8.99% to 15.00%.
  • Origination Fee or Points: One point is 1% of the loan amount. Lower risk loans will have fewer points while higher leverage or risk loans will have more. Most loans come in at 2% to 6% with higher upfront points for second mortgages, which are often smaller than first mortgages and carry a greater risk profile.
  • Underwriting Fee: FCTD sees anywhere from $500 to $2,000 on hotel loans.
  • Doc Prep Fee: A lender, broker or attorney can charge a doc prep fee to draft loan docs, anywhere from $1,095 to $5,000. Attorney doc fees skew higher.
  • Credit Report: Most hard money lenders will review the borrower’s personal credit report. Charges range from $15 to $10.
  • Wire Fee: Lenders often charge for their bank wire expenses. These come in at $45 to $100 on closing statements.
  • Appraisal Fee: A commercial appraisal can cost $3,000 while a Broker Price Opinion can be $150 to $500. It depends on the property and lender requirements.
  • Lender Site Inspection: FCTD has a lender that funds loans from a $25 million credit facility from their bank, which stipulates they physically inspect the property and meet the borrower on site for loan amounts exceeding $1 million. The borrower may be required to pay travel costs for the lender.
  • Legal Fees: Some larger commercial private money lenders will require a $5,000 to $15,000 deposit for legal expenses, similar to a bank or institutional lender.
  • Flood Certification: This is a small charge common on closing statements, at $10-$25.
  • General Contractor Review (GC Review): Most of the GC Reviews I see on closing statements are $350 to $750. This only applies if there is a construction component where the lender is holding back construction funds.
  • Fund Control Fees - initial setup and scheduled inspections: For construction loans, some lenders use a third party fund control company to verify the progress by reviewing draw requests and inspecting the completed work. There is an upfront charge and additional charge for each expected inspection, which is paid during the close of escrow.

Exit Strategy: Refinancing Hard Money Into an Institutional Loan

Selling the property and refinancing are the two ways to pay off hard money loans. Below are the primary institutional lending options that hotel owners use to finance their properties.


Banks of all sizes loan against hotels. It’s common for a bank with a depository relationship with a hotel owner to finance the buildings.

SBA Loans

The SBA (U.S. Small Business Administration) provides both the 7(a) and 504 loan programs for hotel owners. This article from Nerd Wallet does a good job explaining the programs.

CMBS Loans

Commercial Mortgage Backed Securities (CMBS) are institutional loans, often originated by commercial mortgage lenders that sell the new loans to a Wall Street bank, which bundle the loans into CMBS. Fixed- income investors buy shares or portions of the CMBS either directly or through mutual funds that invest in these securities.


Some lenders are set up as a Real Estate Investment Trust (REIT). REITs both buy properties and lend money against commercial properties.

Private Capital

Private capital can be a mortgage fund or debt fund that holds loans in their portfolio. They may have lighter underwriting requirements that can finance borrowers or properties with a few blemishes.

Mezzanine Financing

Mezzanine loans are subordinated loans, meaning they rank below other more senior loans, and are usually from institutional lenders or investment funds.

Preferred Equity

Instead of taking on debt, a hotel owner may bring in a preferred equity partner.


Hospitality hard money loans are an important financial option for hotel and motel owners to consider when they need short-term bridge financing. Although hard money loans come with higher fees and interest rates, they can provide quick access to capital when bank financing falls through or isn’t available. With proper planning and guidance from an experienced broker like FCTD, this valuable tool can help businesses thrive and succeed.

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