When Secondary Markets Catch Lender Attention

LOS ANGELES—Lowe Enterprises Investors has funded a construction loan for the development of a Hampton Inn & Suites in Buellton, CA, a market outside of the popular tourist destinations of Santa Barbara and Solvang. Although this is a secondary market, Lowe found the deal attractive because of the market's limited supply of hotel stock and resiliency during the recent downturn. The borrower, Ocean Park Hotels-BLT, received a $14 million three-to-five year non-recourse loan for the construction of the project. The additional loan terms and pricing were not disclosed. 

“This particular market was very appealing to us because it is running very strong occupancy and the rate has been growing through this cycle. Although the market felt the impact of the downturn, it was fairly resilient,” Cara Leonard, SVP at Lowe Enterprises Investors, tells GlobeSt.com. “We personally believe that there was a fundamental demand shift that made this market strong going forward. We see the demand being driven from the wine industry out of the Solvang market and the Chumash Casino and Resort that draws a tremendous amount of business into the area.” Leonard led the transaction on behalf of Lowe, while George Smith Partners principal and managing director Steve Bram, SVP David Pascale and assistant VP Paul Monsen secured the funds on behalf of the borrower.

Although the hospitality sector has rebounded since the recession, many lenders are still hesitant to lend on hotel developments, especially in secondary markets. In addition to the strength of the market, Lowe thought the deal was a good fit because of their knowledge of the hospitality. “Being that we are owners and operators of hospitality ourselves, we were really able to look at the real estate, the team that was put in place to execute the business plan and the end product and recognize that the borrower in this deal has an exceptional opportunity here,” says Leonard.

Still, there was some competition for the loan, and as a result, Lowe did some minor “sculpting” to win the deal, although Leonard says that they didn't have to make any adjustments to pricing or leverage. “George Smith gave us very clear guidance as to what the sponsor was looking for, and the sponsor's ask aligned very well with our program parameters,” she adds. “It wasn't extremely competitive. There are not a lot of non-recourse lenders that would provide a $13 million or $14 million loan, most non-recourse lenders would be in the $35 million to $40 million range, and the fact that it is hospitality eliminated a lot of options.”

Located at 600 McMurray Road in Buellton, the completed three-story property will have 99 guestrooms, of which 30% will be guest suites. The guestrooms will include typical Hampton Inn amenities, like mini refrigerators, work desks, coffee makers and flat screen TVs, while the property amenities will include a swimming pool, fitness center and wireless internet. To reflect the area, this particular hotel will also offer ample outdoor space with fireplaces, covered terraces and a bocce ball court. It is set to break ground in the next few weeks and will open in summer 2016.

Realty Mogul, a crowdfund lending platform, has been playing in the hospitality arena. The site recently funded the acquisition of two hotels in Joplin, Missouri and the other in Memphis, Tennessee.