If you have plans to buy a hotel, you’ll likely need to work with a lender. But as the borrower there are certain things you need to know before you enter into a deal. The following items are important for you to be aware of and understand when you are setting out to buy a hotel.
Two of the first things you will need to deal with are a franchise agreement and a comfort letter. A franchise agreement means that a hotel is willing to sell you one of their locations to run. They are taking a chance that you will not buy their hotel now and get a foreclosure on it later. To ease their fears you will need to present them with a comfort letter that counts as a separate agreement between you and the lender. This states what will happen if you default on the agreement you have with them.
You will also have to deal with a hotel management agreement. This adds an additional layer of security to the loan you are getting. It states that you can’t terminate any agreements reached, without cooperation from the lender first. If you buy a hotel and it fails, your lender has the right to insist that you find a replacement manager for the hotel. They have to approve of this new manager before he or she takes over running the business.
There is also an SDNA agreement that comes into play. Your lender will want to have this agreement in place if you will act as the owner of the hotel. An SDNA simply reverses a previously reached agreement. It states that if your hotel goes into default, he or she will be made aware of the situation.
The majority of large hotel loans are required to consider cash management. This means that when any airlines or travel agencies have to pay money to the hotel, they have to have the money put into the hotel’s bank account, or a lockbox that you, as the borrower, cannot take any money from.
For more information on buying or financing a hotel, please contact Capital Crown Investments.