Posted over 1 year ago

Hotel refinancing with Haysha Deitsch

Being in the business for more than 20 years Mr. Haysha Deitsch, a real estate developer from New York, founder of Beachwood Acquisitions, talks about the need for refinancing a hotel. He says that this happens in a few situations like:

  • When a newly built hotel wants to refinance its short-term loans for financing investment construction with a temporary short-term bridging loan or a permanent long-term loan
  • Refinancing of existing loans at more favorable terms (longer repayment period, lower interest rates, easier contract terms, etc.)
  • Refinance of existing loans with new, convertible loans or investment capital in order to reduce the possibility of delay in loan repayment and in order to increase the financial stability of the hotel

Normal 1508327142 P2 Hotel

- Services for financing investment hotel construction -

Being an experienced developer, Haysha says that many companies offer a range of comprehensive services to investors and business people who are planning to build new hotels and other tourist facilities. But, only a few deliver the initial offerings and services, so that is why it is crucial to find out as much as you can at the very beginning of the refinancing process. In his analysis, he points all of the aspects which companies choose as a common starting point for market research of the hotel’s services in the relevant geographic area. But, in order not to run into trouble later in the process of refinancing, he points that one must understand and analyze all aspects in all phases - from investing to purchase of the site for construction, from the construction itself to the establishing the costs of opening the hotel, from operating revenues and expenditures during the stabilization period to the stable business period. All of this, according to him, is important in determining the ability to repay the loans and determining future returns of this invested capital.

Here are some of the most important services, categorically placed in several bullet points:

  • An in-depth analysis for the planned investment of the hotel
  • Preparing a business plan or investment program for building the hotel
  • Preparing a financial model for financing the construction and operation of the hotel - financing of preparations, financing of construction, financing of opening costs, financing of operating profit gap during the stabilization years…
  • Calculating the financial effects (these are some of the most ignored indicators according to Haysha Deitsch):

-- equity multiple

-- internal rate of return (IRR)

-- net present value (NPV)

  • Calculating key financial coefficients (also often overlooked):

-- liquidity

-- solvency and

-- profitability

  • Analysis of the financial indicators:

-- scenario analysis

-- sensitivity analysis

-- breakpoint point of profitability

-- time series analysis

-- Monte Carlo simulation

-- regression analysis

  • Preparation of financial projections for the construction of the desired hotel
  • Projection of the cash flows of a future hotel project
  • Analysis of discounted cash flows
  • Preparation of the Report on sources of financing (investment, debt and hybrid capital) and the manner and purpose of using funds
  • Preparation of tax-efficient investment and financial structure of the project
  • Risk allocation and yield determination according to the level of risk
  • In joint venture (JV), the application of the "waterfall" concept to modeling the distribution of profits from the project based on various criteria:

-- equity multiplier

-- internal rate of return (IRR)

-- distribution of the rest of cash flows

  • Modeling the project capital cost
  • Projection of total indebtedness of the project and modeling the debt structure
  • S-curve modeling
  • Modeling the budget for construction works, sources and ways of using financial resources for construction works
  • Loan repayment analysis, defining reserve funds for loan repayment , modeling of the amount of funds for investment hotel maintenance
  • Short-term loans for financing construction, temporary short-term bridging loan, permanent long-term loans
  • Loans of the highest rank, loans of lower ranks, mezzanine
  • Loans for construction works and loans for real estate investments
  • Preparation of the usual marketing project documentation to investors or lenders, information memorandum, proposal of loan terms, etc.
  • Analysis of the offer for credit and support in negotiations for lenders until the end of negotiations and the signing of the loan agreement
  • Project financing and corporate loan (recourse and non-recourse finance), support in negotiations on the conditions under which investors become responsible for repayment of loans from project financing (provisions on "bad behavior")
  • Providing any other service or support until the successful closure of the financial structure for financing the intended investment of a hotel or other tourism project