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Making investments in hospitality is an advantageous decision for business owners and individuals alike. There are numerous options to diversify your portfolio and make a sustainable profit. Hotel investments in real estate range from building a new hotel concept to renovating hotel properties. Nonetheless, there is still a wealth of information that a prospective investor should know before undertaking this nuanced task. In this article, we’re looking critically at the different ways to invest in hospitality.
Building a new hotel concept is a courageous endeavor and it can be difficult without the appropriate financing. After all, constructing a new hotel concept has sizable expenses. Expenses include:
For this reason, you may seek the assistance of a hotel financing company that can guide your project and provide funding. Before you consult a hotel financing company, keep in mind that it may consider the history of the hotel management company.
Enhancing an existing real estate asset can be safer than a new hotel project—it requires less capital, and therefore, less financing. That’s why hotel renovations are an attractive option for both commercial real estate lending companies and hotel investors. If you’re renovating hotel real estate, there are a few financing options for you. Speaking with your existing bank about a conventional bank loan can be the cheapest financing option. A commercial bridge loan is a short-term loan that is ideal when purchasing a distressed hotel property. Conversely, although SBA 504 Loans are less common in a large hotel renovation, they still can be used if you can prove how renovations will improve your hotel business.
Buying into a successful hotel franchise like Holiday Inn, Hyatt, or Hilton is another attractive option for real estate investors. However, acquiring a hotel asset from a successful hotel brand isn’t cheap. According to FranchiseHelp.com, the cost to open and operate a Courtyard by Marriott hotel is between $7 million and $10 million. That’s after the initial $60,000 franchise fee. Alternatively, you may pay as much as $500 per guest room. There’s no denying the cash flow that comes with managing a brand recognized hotel. That’s why commercial lenders are more willing to provide financing for a hotel franchise.
Why look to outside real estate investments when you can refinance a current loan? Hotel refinancing is an asset management vehicle that can produce lower rates, cheaper monthly payments, and additional capital that can be applied towards hotel operations. The aforementioned conventional bank loans and the 504 SBA Loans are good candidates for refinancing. In addition, the SBA 7a Loan for commercial real estate is another loan to consider. This loan type is especially well-suited for hotel projects with a long-term loan between $1 million to $5 million.
If you’re really looking to make investments in hospitality, there are a few other investment options to consider. Asset classes like hotel REITs or individual stocks of publicly traded hotel companies are common investments. Additionally, newer tactics like crowdfunding are other hotel investments that may be appealing. There are also internal investments a hotel can make to improve operations. RevPar (revenue per available room), room rate analysis and other assets that give more operational visibility to a management team are worth considering. Regardless of the method, building your portfolio with valuable hotel real estate can be a lucrative venture.
Investing in hotel projects can be a rewarding undertaking. And, with the appropriate financing, can be a successful business move. If you are in need of hospitality financing, consider AVANA Capital. AVANA Capital offers flexible financing options for commercial real estate projects. In fact, AVANA Capital has lent nearly $10 billion in total for hospitality projects!
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For more information on hospitality financing, feel free to contact the team at AVANA Capital! One of their expert team members will be ready to assist you.