New Construction Hotel Deal In SF - Does It Have A Chance?
Looking for general thoughts/advice on realistic chances of getting this deal funded through SBA or other loan structure allowing for new independent hotel construction and a high LTV in the range of 80-90%:
- I am a principal with 20 years of experience running an independent hotel but no development experience although I have the right team in place in terms of Architects/GC's/Engineers/Designers etc and a great location with proven demand
- Solid performance, track record and high ranking on travel sites for current property
- Developing a small 31 room boutique hotel (economy/limited service concept interior corridor) on site of current hotel
- Older property in need of full tear down as life span is coming to end (built in 50's)
- Looking to do a full tear down and rebuild with a total project cost of $3.6mm including EVERYTHING - demo, construction, FF&E, entitlements, permits, impact fees, etc. Project cost has been vetted strongly.
- My net worth is ~$4.5mm with credit score over 700
- Liabilities of 500k for 7 year refi on Multi Family building on 5 year term. Proceeds to be used for soft costs for hotel development - plans, permits, entitlements. Would use 20-25 year loan proceeds from hotel financing to payoff 500k loan balloon payment in year 7.
- Existing property is free and clear. Land value likely around $1mm (San Francisco - Class A location next to city center - high occupancy rate location year around 80%+)
- Construction costs of $2.6mm and soft costs/FFE etc of $1mm =$3.6mm
- Would use land for owner contribution to recoup cash used from apt refi for soft costs that would be paid by me upfront. Essentially I would pay out of pocket for the front end costs and then when financing is in place I would recoup that money as part of the overall $3.6mm loan with my land as 1st lien collateral. I'm guessing I'll get at least 50% of the appraised value of land to use as collateral.
- DSCR ratio for new owner operated property would be 1.4 in Year 1 and above 1.8 from year 2. ~45% Net Operating Margin and Cash flow to owner after debt service of ~$230k in year 1 and growing through year 5 to ~$350k.
Any thoughts on holes in this deal? What are lenders likely to pick at? I cannot afford to bring on a management company or project manager as the project budget needs to fit ADR. I think my main issue will be lack of prior new construction development experience but the pro forma is solid even when you stress test it for either low ADR and higher occupancy or vice versa.