How to structure this deal the best for long term success

Question

I have a lease option contract on a 28 key beachfront underperforming international hotel. Currently it has no PMS or OTA systems in place and only taking cash with some deferred Maintanence utilizing only 12 rooms and netting $7k a month owner managed on excel sheets. Without the digital income assurance and verifications I didn't figure to obtain institutional financing so I convinced the current owner to do a lease option at $15k down and $5k a month for 24 months with ballon payment end of term that would include owner carrying half the ballon in second position if needed. The purchase price I was able to negotiate on the current 12 keys in operation instead of the 28 keys which brought it to $1.3 with all payments including down payment reducing the ballon at 24 months for total ballon of $1.165 million. Within 3-6 months I plan to stabilize all 28 keys with some CapEx approx. $40k, insert Cloudbeds PMS and OTA systems and at conservative stabilization of 50% occupancy (rural average is 60%) and $70 ADR (average in area $95 ADR) this would put me at over $300k NOI at 7.5% Cap making the asset value more than double the purchase price.

What would be wait time with PMS in place verifying income to go to institutional financing?

Should I continue the 24 months with the lease option at $5k a month to have more revenue and only utilize institutional financing at the ballon payment time because of lower monthly costs?

Would having 24 months on PMS verifiable income benefit me with financial terms more than just 6 months verifying income?

Should I try to find financing now even hard money to secure it without lease option and then refinance once PMS is in place to verify income?

I know there are a lot of options asked but hopefully some seasoned lenders would have some recommendations on best way to proceed.

What would be wait time with PMS in place verifying income to go to institutional financing?

Should I continue the 24 months with the lease option at $5k a month to have more revenue and only utilize institutional financing at the ballon payment time because of lower monthly costs?

Would having 24 months on PMS verifiable income benefit me with financial terms more than just 6 months verifying income?

Should I try to find financing now even hard money to secure it without lease option and then refinance once PMS is in place to verify income?

I know there are a lot of options asked but hopefully some seasoned lenders would have some recommendations on best way to proceed.

Nyron Isaac · Answer

This is a brilliantly negotiated contract. You bought the asset on its current broken state but captured all the future upside.Do not wait out the full 24 months to refinance. While the $5k/month lease payment is great for your short-term cash flow, waiting until the balloon creates massive execution risk. If a lender delays or denies your loan at month 23, you default and lose the asset. Instead, clean up the operations, build 12 solid months of PMS data, and refinance at Month 13 to 15. Your projected $300k NOI will easily support a new commercial mortgage, wipe out the balloon, and secure your equity safely ahead of schedule

Bryce Fairburn · Answer

Hey FloydI have structured these before in this situation!  There are options out there for commercial financing in this space without the PMS in place (or seasoned)Reach out and I would love to help you!