The hospitality industry has seen a surge in growth in the past several years, bouncing back rapidly from 2020 setbacks. As we go into 2025 relaxed interest rates are prompting investment in hotel, resort, and spa renovations. Hotel Dive writes that strong urban markets, sports tourism, wellness amenities, multigenerational travel, immersive experiences, and widespread renovations will be among the trends to watch for this year. To capitalize on these trends, hospitality investors will need the right financing at the right time.
Acquisitions
A recent survey by CBRE showed investors are gearing up for increased activity in the hotel sector this year, especially in high-growth areas like Dallas, Miami, Boston, and Atlanta. Coupled with expected reductions in the Prime Rate, hotel acquisition could become both easier and more competitive. As investors vie for the top-performing asset classes, it will be important to strike a balance between waiting for rates to drop and striking while the iron is hot.
Hospitality acquisitions are powered by a range of loan types, from bridge financing to traditional CRE mortgages. SBA loans have low down payment requirements and provide working capital beyond acquisition costs. Term loans are another attractive choice for investors looking to act fast. What you don’t want is to waste time applying for a loan that isn’t right for your business. Working with a broker significantly speeds up the application process and improves your chances of success.
Franchises
According to Statista, 80% of branded hotels in America are franchises. So, there’s a high demand for franchise financing in the hospitality industry. Most investors decide to finance even if they have the capital to cover franchise fees and other expenses without a loan. This strategy preserves cash flow and builds credit. Hotels, motels, and spas can benefit from short-term private loans because acquisition, upgrades, and appreciation drive revenue quickly. Bridge loans give businesses the power to close deals quickly and transition to low-interest financing later.
The SBA has several loan programs, but 504 and 7a loans are the most often used for franchise financing. Although both help business owners purchase and renovate franchises, these loans are very different from each other. To decide which one suits your business best, speak with your broker. They may recommend an SBA 504 if long-term, fixed-rate financing is right for you.
An SBA 7a loan would fit best with investors looking to include working capital with an acquisition.
Reflagging
When joining a successful brand, reflagging ensures you can take advantage of the new brand’s reputation, customer base, and guidance. Often, reflagging is less about new construction and more about FF&E, or “furniture, fixtures, and equipment” financing. However, that doesn’t mean restyling your business to meet the standards of the new brand will be inexpensive. What it does mean is you’ll need a different form of financing that’s more flexible than a traditional construction or real estate loan to cover the scope and variety of modifications and upgrades required.
FF&E loans cover costs like new dining tables, commercial ovens, doorknobs and digital locks, beds, flatscreen TVs, and POS systems. These assets depreciate over time and have a defined useful life. However, they’re not attached to the business property. FF&E loans are designed to be convenient without interrupting your cash flow. Plus, they can provide upgrade opportunities as technology evolves. Equipment loans, leases, and sale-leaseback loans are just some examples of FF&E loans that you can talk about with your broker.
Property Improvement Plans
To reap the benefits of being part of a brand, your business must commit to withholding the brand standards. A property improvement plan, or PIP, is how a brand communicates its standards for operating under its flag. PIPs aren’t always met with enthusiasm from franchise ownership, however, because they represent capital expenditures. On the bright side, PIPs are an opportunity to lower operating costs through changes like energy-efficient systems or force appreciation through cosmetic upgrades and enhanced amenities.
PIP loans support upgrading to meet a flag’s requirements whether you’re part of a restaurant, spa, or hotel chain. How a PIP loan looks depends on what’s required to meet brand standards. For instance, to bring in new furnishings and decor, a line of credit could be a wise choice. LOCs support as-needed purchasing with lower rates than credit cards. If you need to build onto your existing facilities, a bridge loan could be the answer. Bridge loans are short-term, offering early repayment without penalties. Ask your broker to match you with the right PIP loan so you’re putting your capital to work as efficiently as possible.
For smart investment in the hospitality industry this year, you’ll need financing tailored to your specific goals, not a one-size-fits-all solution. Whether you plan to start in Q1 or Q3, a broker will help you review your options and identify your best deal. Brokers have access to deals you won’t find from online lenders. They’ll save you time and effort, allowing you to focus on your investments. Schedule a consultation to explore financing options tailored to your hospitality investment now.