GMAC Asset-Backed Lending Division Maps Out Better Way To Make Ends Meet

ATLANTA, GA— GMAC Commercial Holding Corp. here is convinced there are ways hoteliers can make ends meet in a more decidedly bottom-line-friendly manner. Along these lines, the firm’s Asset-Backed Lending Division has been diligently extolling the economic and operational virtues of supplemental-financing programs. To this end, one course of funding coming in for particular emphasis by Greg Friedman— vp/business development for the Eastern Region with the GMAC specialized-lending division— is that of (up to 100%) Furniture, Fixture and Equipment (FF&E) financing for new construction as well as renovation hotel projects. Addressing the overall project-financing scene, Friedman noted: “Many new-development and renovation hotel projects are being funded through regional or local banks that are typically financing only 50% – 70% of the project cost. The stringent requirement of injecting up to 50% cash equity has forced many hotel owners and developers into a problematic situation,” he suggested. Taking this assessment a step further, Friedman maintained: “Several hotel developers and owners have utilized some type of supplemental-financing program to help reduce their equity injection.” More specifically, he claimed: “Borrowers typically find that getting a FF&E loan/lease… is less expensive than injecting additional equity or using mezzanine financing.” In the course of contending that FF&E financing can be a most viable alternative to the expense of mezzanine financing or the difficulty of raising private equity, Friedman explained: “The typical term of an FF&E loan/lease is fully amortizing over the course of a three-year to seven-year period, with interest rates typically 1% – 3% higher than primary or senior debt.” Little wonder then, the GMAC executive allowed, that numerous hotel owners have turned to FF&E financing/leasing programs to help bridge the gap between primary debt and equity. Citing a host of benefits that could routinely accrue to FF&E financing, Friedman mentioned such positives as: • up to 80% – 85% combined loan-to-cost; • the allowance of future cash-flow projections while underwriting the transaction (which can lead to a higher approval rate); • comparatively minimal documentation requirements and lower closing costs; • speedier closing can be facilitated (due to less documentation and no necessity for new third-party reports); • interest rates typically only slightly above those of primary debt; and • considerably more term flexibility (tied to the useful life of the equipment being financed). Further examination (and examples) of FF&E financing— along with a fuller discussion of why, with tighter underwriting criteria, refinancing a loan may not be the hotel owner’s best capitalization solution— can be referenced in Friedman’s MoneyTalks column appearing in the March 2004 edition of HOTEL JOURNAL®.