Smart financing of hotel upgrades can make or break profitability
Bay Area hotel owner Jayesh Desai, with his brother Don Desai and his partners, recently closed escrow on their sixth SBA 504 hospitality loan with TMC Financing. They purchased the 52-room Sands Motel in San Pablo, California, for almost $5 million, including $1.5 million in 20-year, fixed-rate SBA 504 financing from TMC.
“Jay and Don look for properties that are generating a nice income and have a good location, but for some reason they aren’t getting what comparable properties in the market are getting,” explained Howard Mathews of National Hotel & Motel Brokers, who brokered the deal. “They may be performing, but need a little tweaking. By making an investment in upgrades or adding a franchise, they can gain an advantage in the market.”
The Sands Motel property is now going through an upgrade, with more than $350,000 in planned renovations and equipment upgrades, including carpet, air conditioners, televisions and solar panels.
“The SBA 504 program makes sense for our approach,” Jay Desai said. “SBA 7(a) financing is limited to $5 million and if you own multiple properties, that doesn’t go very far. If you use the 504 program and go green by installing solar and the like, it doesn’t count against your eligibility.”
“Adding energy efficiencies removes SBA limits on the number of projects you can finance,” Jim Azevedo, TMC senior vice president, said. “You can qualify by reducing energy consumption by 10 percent or by using renewable sources like solar, wind or biofuels to generate 10 percent of your usage.”
Mathews said different management approaches—those little tweaks—can make a big difference in profitability. “You have to know what to look for and be willing to invest in what it takes to make the property more attractive. If you can get another 50 percent in revenue per available room, you know it’s worth it.
“Jay and Don like to work with Jim and TMC,” Mathews continued. “They have good people who know what they are doing and can get deals done.”