How We Financed and Opened a Hotel in a Global Pandemic
The Indigo Road Hospitality Group, which launched its lodging business in late 2019 after ten years as a successful restaurant company, has quickly established a pipeline of hotel projects either just opening or under development. Similar to most other hotel groups, getting projects started and financed has been daunting for IRHG and its partners/clients due to the COVID-19 pandemic. Overcoming the financing challenge has required creativity and resourcefulness, and we are pleased to share one example — an acquisition renovated and repositioned.
“Overcoming the financing challenge has required creativity and resourcefulness”
The Project
The acquisition of the existing hotel, Skyline Lodge in Highlands, NC, was made in 2020 well before any vaccine for COVID-19 had been approved and there was no clear end in sight for the pandemic’s most restrictive protocols that were severely hurting the hospitality industry. IRHG came up with the equity needed and found a lender for the needed debt just prior to the pandemic shutdown, but then the lender withdrew its commitment as it ceased to consider financing any hotel assets as did nearly all other lenders. Fortunately, there was a motivated and capable seller who agreed to do seller financing for a limited period of time after which IRHG would have to pay off the seller’s note.
This still left the renovation to be financed. IRHG’s plan for the asset was a complete repositioning from a midscale product to one that is upper-upscale. IRHG diligently explored all avenues to find needed financing and inquired with the USDA’s rural economic development program, wherein loans to create or improve businesses in rural areas that are deemed economically challenged, can receive up to 80% guarantee from the USDA. With this program combined with their balance sheets, IRHG’s owners found a lender that was comfortable making a loan sufficient to cover the takeout of the seller’s note and pay for the renovation.
How we did it
The USDA loan guarantee process is lengthy, so a bridge loan to do the renovation was acquired from the same lender that is doing the permanent financing with the USDA guarantee. All of this was helped along by the use historic tax credits since the Skyline Lodge was deemed an historically significant structure. The sale of the tax credits resulted in a more than doubling of IRHG’s equity in the project. Once the bridge financing and seller’s note are paid off by the permanent financing guaranteed by the USDA program, the capital stack ends up being $3 Million in equity and $12 million in debt with attractive terms of 4.24% APR with a 25-year amortization schedule.
Creativity, diligent research, and tenaciousness resulted in a beautiful outcome both financially and as a renovated, rebranded, repositioned hotel. To see the end result, please visit skyline-lodge.com.
