An experienced developer with a solid reputation in the hospitality industry had begun construction on a SpringHill Suites in Orange County, California. This property, specifically located in Placentia, offers a superb location – just minutes from Cal State Fullerton and close to Disneyland, Santa Ana and Huntington Beach – as well as a strong extended-stay business model. However, although construction was progressing on schedule, the developer was surprised by the sudden change of circumstances caused by the COVID-19 pandemic. He had secured bank financing for the remainder of his project, but as a result of the
pandemic, the bank withdrew his financing at the last minute. In the middle of a massive construction project, the developer knew that he needed to find an alternative solution – and fast.
Although the Coronavirus has altered the economic environment for all of us, our team knew we could make the project a reality for this borrower.
AVANA Capital’s team had knowledge of this developer and understood the circumstances of this sudden predicament. Previously, AVANA had quoted on this loan, and was therefore closely familiar with the property, the geography and the developer’s history and objectives with the project. Although the Coronavirus has altered the economic environment for all of us, our team knew we could make the project a reality for this borrower. Furthermore, we knew that what this developer needed more than anything was a true partner who could see this project all the way through to fruition.
Another major concern with the project was the necessity to close as quickly as possible, at latest by the end of July. Despite this expedited schedule, our credit team pulled together to re-visit the deal and create a workable solution.
Although AVANA knew the details of this project in advance, there were still hurdles to overcome. Specifically, this project did not have a typical GC/borrower relationship – all subcontractors were managed by our borrower and the entity almost functioned like a self-GC. Despite this presenting a marginally greater risk, our underwriting team was able to justify this by considering the risk mitigation offered by the timing, as the project was already almost 50% complete. Our construction monitors efficiently evaluated the property and concluded that, despite our new pandemic-focused reality, this project was progressing on schedule and to a high standard.
In addition, although this borrower was previously offered a highly-competitive institutional rate from a traditional bank, AVANA was able to increase the competitiveness of our offer by partnering it with a C-PACE component. The mechanics of the deal included 52% financing from AVANA and 23% from a PACE provider (Petros Partners) – enabling us to achieve a combined 75% LTC. As a result, this solution made it possible to ease the cost burden on the borrower.
All in all, this financing solution ended up being a win for both our borrower and AVANA. Given our current reality, many lenders have frozen their financing activities. However, at AVANA, we understand the hospitality sector inside and out, and are still eager for the best possible construction loan opportunities. Our goal is to support the finest quality projects, concentrating on limited service and extended stay properties during COVID times.
AVANA Capital is focused on both stimulating the U.S. economy through job creation as well as developing clean energy sources across the country. Through projects like this one, AVANA Capital helps create jobs in communities in the United States.
As a result of this particular project, approximately 25 jobs will be added in the Orange County area, additional tax revenue will be generated, and more visitors will travel to Southern California’s many destinations.
To learn more about our hospitality practice and our financing capabilities, please contact:
Kurt Peterson, Director, Hospitality Originations
Sanat Patel, Co-Founder and Managing Director