Commercial loan modification for business related or income producing properties is an option that is often overlooked. Those frantically trying to restructure their finances are generally worried about the family home – not realizing that modification can also save their business. Many types of companies could easily qualify for relief such as a refinance, extension, lower interest rate or even a complete restructuring of the loan.

Qualifying properties may fall into one or more of the following categories:

- Residential properties that produce income, such as single family properties, most multi family units and mobile home communities

- Commercial properties that produce income such as storage units, bowling alleys, car washes, or auto/service stations

- Retail properties that produce income, such as gas stations, convenience stores, groceries and markets

- Properties housing a food service establishment (bars, saloons, cafeterias, restaurants and can catering companies)

- Properties housing health care facilities (hospitals, hospice, nursing homes, assisted living, doctor or dental offices, health spas and daycare centers)

- Mixed use properties, anchored and unanchored retail centers, office buildings and space, and flagged or un-flagged hospitality properties

- Industrial properties (light, medium or heavy) warehouses, manufacturing structures, and industrial condos

- Religious or educational properties such as schools / educational facilities, churches (mosques, synagogues, temples, etc), and not for profit 501(c)3 charities

In addition to these, some properties are considered on a case by case basis:

- Properties housing entertainment, such as sporting arenas or facilities, theme or amusement parks, or venues with non-structural interior poles used for adult entertainment shows.

- Properties used for recreational purposes, such as golf courses, marinas, campgrounds, RV parks and retreats

- Agricultural properties and property that is vacant or owned by a real estate or mortgage company, financial institution, or title or escrow company

Property located outside the US, involved in bankruptcy, undeveloped, under construction or in the process of being rehabilitated are not eligible for commercial loan modification. Neither are timeshares, dealerships, or properties financed under an SBA, USDA, B&I 7(a) or FFE programs. Some state specific exclusions may also apply.

By: Miklos Roth

About the Author:
For more information on commercial loan modification please visit our website.

Getting a commercial mortgage for a hotel property is very similar to getting a commercial mortgage for an owner occupied commercial property with a few subtle differences. The driving force for the majority of most hotel income is the RevPar or revenue per available room. RevPar is most commonly calculated by multiplying a hotels average daily room rate (ADR) by it occupancy rate and is a key indicator of performance. Rising RevPar is an indication that either occupancy is improving; the ADR is increasing, or a combination of the two.

Although RevPar only evaluates the strength of room revenue, it is typically the most relevant indicator of performance. While many full service hotels generate revenue through other means such as restaurants, casinos, conferences, spas, or other amenities the majority of hotel properties are either limited service flagged properties or limited service unflagged properties. A limited service hotel is simply a hotel with out a restaurant. Because the operating costs of the restaurant component generally run higher than that of the hotel operations, it is common for the net operating income (NOI) as a percentage of total sales to be lower for a full service than a limited service hotel. For this reason the majority of commercial lenders prefer to finance limited service hotels.

Flagged vs. Unflagged Properties:

A flagged hotel property is simply a hotel that belongs to a national franchise. An example of a flagged property would be a Holiday Inn or a Best Western. For the guest, a flagged property provides the benefits of a uniform standard that is upheld by the franchisor. A guest could stay in a flagged property on the east coast and could expect the same flag on the west coast to have the same standard of cleanliness and amenities. The owner of the property gets the benefit of a nationwide reservation system and marketing. For this benefit the operator is expected to pay a franchise fee which can typically range anywhere from 5% to 10% of room revenue. Because of the advantages that a flagged property has, most commercial lenders prefer to finance them over an unflagged property. Sometimes it can be extremely difficult to get a commercial loan for an unflagged property, especially if the property isn’t in what is considered a destination resort area. A destination resort area would be an area like Miami, Myrtle Beach, or Orlando FL. An unflagged property in a destination resort is easier to obtain a commercial loan on than an unflagged property in other areas of the country.

Exterior Corridor vs. Interior Corridor:

An exterior corridor property is a hotel property where you can actually see the door to the rooms from the exterior of the property. These are sometimes referred to as a motel instead of a hotel. The term motel is actually derived from the term motor hotel where most travelers would park their vehicle directly in front of their room. While there are disagreements between what defines a motel and what defines a hotel, there is typically very little difference between the two outside of a lenders perception.

Most exterior corridor properties are older and subsequently will not have the quality of furnishings and will have more deferred maintenance than an interior corridor property. An interior corridor property is going to be more energy efficient and would have a lower utility expense as a percentage of gross revenue.

Financing Your Hotel Property:

When trying to get a commercial loan for your hotel property there are a few distinct differences you can expect as opposed to financing other commercial properties. A hotel property is considered special purpose in nature which simply means that it is generally cost prohibitive to convert it to alternate use. An office building or retail space can accommodate numerous types of businesses whereas a hotel property can only accommodate a hotel. Because of this a commercial mortgage for a hotel is going to be considered riskier to the lender than a commercial mortgage for other general purpose property types. A lender will mediate this risk by taking a more conservative approach to underwriting a hotel property.

The loan to value (LTV) for a hotel property will be lower than other general purpose property types. For a limited service, flagged property 65% LTV is typical and that number can go down depending upon the age of the property and whether its interior or exterior corridor. The LTV is simply a ratio calculated by dividing the loan amount by the value of the property. The debt service coverage ratio (DSCR) for a hotel will also need to be higher than that of a general purpose property type. The DSCR is a ratio that determines the strength of the property or business income in relation to the proposed mortgage payment. A typical required DSCR for a hotel property by a commercial lender is 1.30 which simply means that for every $1.00 in proposed mortgage expense there should be $1.30 available to pay it. For other general purpose property types the DSCR is lower. A DSCR of 1.20 is common for general purpose property types and can go oven lower for a less risky property such as an apartment building.

Because the acquisition of a hotel property under a conventional program requires a large capital injection, many borrowers prefer to purchase a hotel property by utilizing the SBA 504 program. This program enables the borrower to put in as little as 15% and still obtain a better interest rate than a traditional commercial mortgage for a hotel.

By: John Berardino

About the Author:
This article has been provided courtesy of commercialmortgage.net. Commercial Mortgage is a Hotel Commercial loan division of Griffin Capital Funding offers hotel loan and hotel financing with no personal guarantees, favorable loans rates and good terms.

The case of Evans v Cherrytree Finance Ltd [2008] concerned unfair contract terms in relation to a loan agreement. The defendant company in this case ran a business which involved lending money to non-status, high risk borrowers on commercial premises.

The claimant and his wife owned a property. The property was used for their antiques business in which they were partners. In 1993, part of the property was converted into residential accommodation. From that point on the claimant and his family lived in the residential part of the property (“the Residential Accommodation”).

The Residential Accommodation and the business premises had separate addresses. Unfortunately, in 1999, the claimant’s wife initiated divorce proceedings and the partnership was dissolved. During the course of the divorce, the claimant’s wife secured an order for the property to be sold.

Understandably, the claimant was anxious to prevent the sale. The claimant was granted four weeks in order to raise