The Ultimate Guide To Financing Your Next Hotel Deal | Suraj Desai E30

In this episode of the Hotel Investor Playbook, we sit down with Suraj Desai, a hospitality finance expert who has helped close hundreds of hotel deals, to unpack everything you need to know about financing your next acquisition, renovation, or ground-up development.

Suraj breaks down the full capital stack, from SBA 7a and 504 loans to bridge, CMBS, and mezzanine debt. He explains which types of financing work best for boutique hotels vs. flagged assets, why banks are pulling back, and what it really takes to get a deal funded in 2025.

We also cover:

• The difference between good collateral and great sponsorship (and why you need both in today’s market)
• How to use bridge and mezzanine loans to scale faster, even with limited equity
• The truth about SBA loans: how they work, who they’re for, and the major difference between 7a and 504
• What CMBS lenders really look for (and why they’re not always the bad guys)

If you’re serious about buying your next hotel or just want to understand what lenders are looking for right now, this episode is a must-listen. It’s a masterclass in real-world hotel financing.

About Suraj:

Suraj Desai leads the hospitality practice at Black Bear Capital Partners, a nationally recognized capital markets firm that has closed over $28 billion in commercial real estate financing. With more than a decade of experience and over $800 million in hospitality debt and equity transactions, Suraj specializes in structuring creative and competitive financing solutions for boutique hotels, lifestyle assets, and independent operators. His team brings deep lender relationships across all major platforms including banks, credit unions, SBA, non-recourse lenders, bridge lenders, and mezzanine providers. Suraj is widely regarded as one of the go-to brokers for hospitality financing and has helped secure funding for properties ranging from $3 million to $50 million nationwide.

Connect with Suraj:

Website: https://bbcp-llc.com/

Email: sdesai@bbcp-llc.com

Phone: 773-314-7659

Linkedin: https://www.linkedin.com/in/suraj-desai-4276ba24

Connect with Michael on Instagram or LinkedIn.

Email Us at info@hotelinvestorplaybook.com

Visit the Hotel Investor Playbook Instagram

Invest with Malama Capital

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Transcript

Nathan St Cyr 0:00

What's the smartest way to finance a boutique hotel deal in today's market when traditional lenders are cautious and capital stacks are getting more complex? In this episode, Mike and I sit down with Siraj Desai, Senior Managing Director and Head of Hospitality at Black Bear Capital Partners. Siraj has placed over $250 million in hotel financing and knows exactly how to navigate SBA, bank, bridge, mezzanine, and preferred equity structures, even in uncertain markets. We break down the capital strategies that are working right now, what lenders actually want to see, and how emerging operators can position themselves for success, even without deep-pocketed partners. If you're raising money, scouting deals, or trying to build a capital stack that truly works, this is the episode you've been waiting for. Let's dive in.

Michael Russell 0:55

Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate. Get in the game, welcome to the Hotel Investor Playbook, where Mike and Nate, founders of Malama Capital, and your hosts. On this podcast, we talk story about everything you need to know to make money investing in hotels and hospitality assets. On today's show, we have Siraj Desai. Siraj, welcome to the show.

Suraj Desai 1:34

Thank you. Thank you for having me.

Michael Russell 1:36

Yeah, we're pumped. So I just want to say, Siraj, I want to give you some credit. I listened to you. We were on a virtual meeting where you were a presenter and people were firing off questions and you were just on point. Like you were just responding very quickly and accurately to all the questions that were being fired at you. And I was like, wow, this guy's this is really impressive. And not just because you had answers, but because you were able to articulate those answers that sometimes can be, they're about relatively complex situations and scenarios. And you were able to simplify it. So I was really impressed with you. And I told Nathan, I'm like, oh man, we got to have them on the pod. It's gonna be great. So I'm excited to dig in. You're in the business of getting loans for people that are looking to buy hotels or refinance hotels. You're you're in the hospitality finance business. So we've got a list of questions. I'm excited to get started, and I'm gonna fire away.

Suraj Desai 2:31

Absolutely fire away.

Michael Russell 2:33

Cool. So, first off, what's the appetite right now for hospitality lending in today's market? You know, what can we expect moving forward in 2025?

Suraj Desai 2:43

I mean, the market is still very banks, they are not as responsive. They seem to be a little bit less open to do deals because of volume and capacity. But I do think the market is slightly getting better than it was in 2024. Uh bridge lenders are back in the game. Certain non-recourse options are also becoming more active again. The CMBS market seems a little bit more active on the hospitality side, but the market has been slow since 2022 or 2023 when rates start to go up. But things keep uh are starting to head into a better direction.

Michael Russell 3:17

Yeah, I want to know, is this a hospitality-specific thing where banks are a little squeamish about lending, or is this across all real estate assets where they've just they've got a little more conservative in their lending approach?

Suraj Desai 3:28

Yeah, that that's a good question. I mean, I would say it's conservative throughout. I think they still like good collateral and they want good sponsors, but it's easier for traditional banks, if they have limited capital, to focus that limited capital on existing clients that they already have bank accounts with, have current loans with, it's just easier for them to go through that credit memo process. But that's where we can come in and provide alternative sources of capital to help finance people's deals. I mean, I still think there's capital out there, and we do a good job of finding whether it's local credit unions, regional banks, and other lending sources that are out there. But with our whether it's debt funds and certain non-bank lenders that we we tend to use often, I think we're able to sort of fill in the gap and provide the capital needed depending on every type of deal, whether it's ground-up construction, acquisition, redevelopment, or refinance.

Nathan St Cyr 4:22

Okay, awesome. Quick time out. I want to rewind to something you said. You said they always like good collateral and good sponsors. So I wanna I wanna dig into that a little bit. When you when you say, can you identify what good collateral means to to you or to a lender and what a good sponsor means to you and a lender?

Suraj Desai 4:49

Sure. Very high level. Good good collateral. Ideally, it should be a cash flowing asset. Um, if it's not, if it's a uh a sort of a fix and flip or a fix and refinance later on, that that's another story. But no, uh if it's a market that the lender's heard of, if it's very tertiary, that the lender doesn't know where they have to ask a lot of questions about it, even though they live in the state, that to them that's probably not great collateral. But sort of just like the basics, when was it built? Uh, when was the last time money was put in, CapEx was put into the property? Is it cash flowing in the market? Is there opportunity, whether the vacancy factor is there or the occupancy is very high in that market? What's the ADR or typical like sort of rents in that market? I think all these things sort of help them decide of what good collateral is, whether it's concrete build or wooden build. But I think the main question is always cash flow. Like, is it cash flowing? Or and if it's a fix and flip, when was the last time it was cash flowing? And when it comes to sponsorship, the first thing that they look at is liquidity net worth. If you're gonna use a more traditional bank, like a local bank, not just with the asset, but they would ideally like their sponsorship to also be based out of that market if possible. That's not a necessity, but it's something that they would like. And then, yeah, again, good liquidity and then good net worth. Liquidity is always king because in the event of something going wrong, they want a sponsor who can sort of withhold bad times and stay strong and stay firm. And I think good sponsors also show good case studies. Like, have you done this before? If it's a major renovation in a market that you don't have another asset in, how does the bank know that you're gonna be able to deliver it? Well, the best thing is a track record. Or if you don't have a track record, are you partnering up with somebody that does? And just to have sort of everything tied up, if it's gonna be a massive renovation, do you have a detailed budget? You know, how much have you thought this through? So all these sort of things tie into good sponsorship and good collateral. In a strong market where rates are low and lending is abundant, like we went through in 2021 and 22, where lending was sort of going very strong. Whether if you have a good sponsor, you have a deal, and if you have good collateral, one of the two, it's possible to do a deal. Now with the banks, because they have limited capital, you need both.

unknown 7:11

Yeah.

Nathan St Cyr 7:12

Awesome. That's that's great advice.

Michael Russell 7:15

So you knew you were talking about how right now, this market, this climate, that some banks might be a little more conservative, but you've got resources to offer alternative sources of financing. Could you just provide an overview, maybe just high-level overview of what the different types of financing options there are in the market?

Suraj Desai 7:35

Yeah. So the the very basic the traditional one that we talked about is sort of bank or credit unions. They're the ones that have more traditional where they give you an amortization for hotels in the market. It's usually a 25-year amortization and they give you five to 10 years fixed. Their rate is based either on Prime or the five-year treasury plus some spread. And it's a typical bank loan. Aside from that, there's also SBA. Uh, if the person buying a hotel is gonna like run the hotel themselves, they don't really have a GPLP model where everyone that's in a partnership is peripasu and they're doing a more traditional tribe of partnership structure in their LLC. We can do an SBA, which allows the benefit of SBA, its structure is very similar to the conventional and traditional banks where there's a 25-year amortization. But the one benefit of SBA is it gives you leverage because the loan isn't just personally guaranteed by you, it's also backed by the government. So the government's providing their guarantee. So on most traditional bank loans, you get 65% leverage, or maybe you might get lucky and get 70, but with an SBA loan, you can get up to 80 to potentially 85% leverage. So you need significantly less equity in that sort of structure. Aside from those two structures, we also have bridge, which is for predominantly debt funds. And bridge is typically used for a more transitional natured product. Say if you buy, let's just go into the boutique market, you buy a 20-unit property, right, that sort of needs some love. Someone ran it as a as a bed and breakfast, but they haven't really put in any capex in a long time, and they're they're selling it to you, and you want to purchase it, but you think that there's an opportunity to increase value by investing some capex into it. A transitional bridge is a great way to get those capex dollars as well as funding to acquire the property. And another thing with bridge loans, they typically act a little bit faster than a traditional bank. So if you have a purchase a sale agreement or you have a short timeline to purchase the property, a bridge lender can come in, act fast, but it usually comes with a shortened term with anywhere from 12 months to 36 months, so one to three years, which allows you to buy the property, put the capex, stabilize, and then refinance into a more traditional loan after you've increased the property value. And then other than that, the main sort of suitor for for for hotel deals is CMBS. I wouldn't say CMBS is very active in boutique hotels. They do do they do finance some boutique hotels, but it's typically larger. CMBS does typically target $5 million and above for refinance opportunities. And for boutique properties, they do want the mark, the market to be a strong market, usually coastal market or something with a heavy demand generator. But CMBS people do, especially on a GPLP structure, it's a great product because it's non-recourse. So it takes away any contingent liabilities from your LP investors as well as a GP as well. It allows you to feel fuel for more growth as you can do quite a number of CMBS deals without having the contingent liabilities affect your PFS where a bank thinks that you have too much leverage on your books. I wanted I have a couple of questions.

Nathan St Cyr 10:58

First of all, what does CMBS stand for? CMBS stands for commercial mortgage backed securities. Okay. And the benefit of CMBS, other than how it's good for working with some syndication structure and the non-recourse, how does it compare from uh how does it compare to rates and percentages of loan to value? Is it beneficial?

Suraj Desai 11:22

Well well, CMBS does use a 65% LTV typically for hotels, I would say. That would be like maximum leverage. In terms of the rate environment, they're very similar. They typically a CMBS is a 10-year deal where they use either the 10-year treasury or the 10-year swap rate and add a certain spread. The overall rates are very similar to what we see in the rest of the market. But another benefit of CMBS is that most banks in the hotel space offer a 25-year amortization. CMBS does offer a 30-year amortization in the hotel space. As long as the collateral is strong, they would sort of refinance you the maximum amount of dollars up to that leverage of 65%. They would have it usually use LTV, they would use debt yield, which is sort of similarly calculated as a capitalization rate, but it's uh net cash flow over the loan amount, and they would use DSCR. If you pass certain thresholds, they'll give you the maximum loan proceeds needed. So people like doing CMBS because there is cash out in the deals, especially if you've increased value after owning it. So that's why people love to use CMBS for refinance, but it can also be a great tool for acquisitions, especially when you have a GPLP structure.

Nathan St Cyr 12:30

Okay, but you said that typically the boutique on the boutique side, they're they're not as fond of. And and why was that?

Suraj Desai 12:37

Well, I I was sort of focused when I was meant mentioned that statement. If you have like a 10 to 30 unit or 40 unit property, I just think the loan amount just wouldn't be there to do a CMBS loan. They do want their minimums to typically be five million.

Nathan St Cyr 12:50

Okay, so it's more about the the minimum lending amount versus the asset type.

Michael Russell 12:56

Yes. And don't CMBS loans, they don't require a personal guarantee. Is that correct?

Suraj Desai 13:03

Yes. That's what a non-recourse, there's no personal guarantee. So there are bad boy carve outs, but aside from that, there it doesn't add any contingent liability to your sort of personal financial statement. If you ever wanted to get a bank loan on other deals because you have all non-recourse, your banks would be more open. They won't feel that like you're you're over-levered on your existing portfolio because you have no contingent liabilities on your current holdings. So they're good for growth.

Michael Russell 13:30

Exactly. Got it. Yeah, I've also heard though that they have a reputation of being somewhat ruthless, right? There's a relationship with a personal banker that you can build. But with CMBS, it's just some person that there's not like an actual person you can reach out to. It's just cut and dry, whatever the paperwork says, like you got to make sure that when you negotiate this term, you get everything in writing because if ever there's a situation where you're in distress, like you're not getting any help from them. Can you attest to that uh statement that they can be a little bit ruthless?

Suraj Desai 14:01

So CMBS loans are they're purchased in the secondary market. So say if I go to a bank, right, a big bank, and I do a CMBS loan and we close. Typically 60 to 90 days, they'll sell that mortgage into the secondary market and it won't be on their books anymore. And who you will be contacting, like when you when you do a bank loan, you're gonna be contacting the bank itself. But when you do a CMBS loan, if there's ever an issue, your point of contact is the servicer. Now, these servicers service a large number of loans. So they won't give you the type of personal service that maybe most people are accustomed to to working with a community bank. Ruthless, I think if there's a problem that I've heard clients say that they are tough to deal with at times, but it's usually people have a tough time on their first go-around with CMBS. But if you're familiar with the product and you're and you're handing in your paperwork on time and you follow the loan docs, it can be a very beneficial source for seeking capital.

Michael Russell 14:57

What about these other capital sources like life insurance companies? How do they loan? Do they loan on hospitality assets?

Suraj Desai 15:05

Yes. And life companies was on my list. The reason I don't heavily market life companies, life companies have a very niche box of assets that they do, primary, at that minimum, secondary markets. They typically want low leverage. Many life coats want 45, like sub-50% leverage. They're a great lending source to go to if your property is eligible because they do offer very competitive rates. They also can give you the 30-year amortization or they can lower the amortization. And it's also non-recourse, but it's balance sheet. So you'll get the customer service that you're accustomed to with a local bank, but they're similar to CMVS, it'll be non-recourse and there'll be no personal guarantee.

Michael Russell 15:48

Gotcha. No, that's great. I I've always wanted to know this, so I appreciate you taking the time to walk through all these. I've got one more finance class that I need some clarification on, which is mezzanine debt. So when do people use mezzanine debt? How does that work in terms of its rates and terms? What's the purpose?

Suraj Desai 16:05

So mezzanine debt, people use it as a sort of vehicle to add more leverage to their property. Say if the senior loan, say if we're buying, let's just use a $1 million property, or let's just use $10 million, okay? And then the bank that I go to is only now offering a senior loan up to $6 million, but I only have $2 million of capital or $2 million of equity to invest into the property to acquire it. Now there's a $2 million gap there, right? $6 million from the senior bank, and there's a sort of a $4 million of equity slug. So I can get a $2 million of mezzanine to sort of bridge the gap to help me acquire the property. A lot of times people confuse Mes with second lien. Mes is not a second lien on the property, it's a pledge of membership interest. So if you default on the MES, they can move in and sort of take ownership of your LLC, eat out shares of your LLC and sort of take over the property. It's heavily priced. The pricing is a little bit heavier. I would say for hotels, the rates start at 11. When people hear me say that, they think that they'll be qualified for 11. But realistically, most of the mezzanine loans that I've done are anywhere from 15 to 18%. So it's pricey paper, but it's definitely for people who don't want investors to, I guess, eat up their shares and just raise more money and then they're dilute their shares. If you really believe in a project and you want to own it holistically, or you want to make sure the upside goes to you because you believe in the value out of it, mezzanine is a great option to go to. Over the last couple of years, we've done a few 90% LTC loans where we had a senior at 65 to 70%, and we filled it in with a mezzanine loan, and our sponsor was able to increase value in the property within 12 months. It was institutionally operated, so the net cash flow margins were light. And also because it was institutionally operated, they didn't focus on that asset to how to build more revenues. As soon as my client took over, he increased the value, he inclused the increased the revenue, but then also took away operational inefficiencies, obviously showing a massive increase in net cash flow. So he purchased it for 60 million, and then 12 months later, it was valuated for 85 million. So even though we did 90% LTC, a year later we were able to get CMBS and a couple of banks, it was a three property portfolio to refinance at 65% of value. So because he used Mes, he owns 100% of that of all that equity that he's increased. If he if he brought in investors, he would have lost in on some of the upside of that. Mes is a great fool, but it's a it's a little bit, people feel it's a little risky.

Nathan St Cyr 18:46

That's a bet that's a that's a bad strategy if you're confident.

Michael Russell 18:50

Yeah, so it sounds like Mes is gonna be temporary with those types of rates. 15, 18%, that's pretty sky high. So if this is a temporary situation, then I am assuming, based on all the different financing types that you just walked through, that someone's gonna arrange this with the first loan being a bridge loan, the second one being the mezzanine, and then they'll refinance in a couple, three years, hopefully, or less into a more permanent situation like CMBS or through their bank, or maybe even through SBA, but more of a permanent long-term solution.

Suraj Desai 19:22

Yes. And another thing with mezzanine is you also have to get permission from your lender. So a bridge lender might maybe would be more likely to be open to it. CMBS does allow me but doesn't love it. But SBA, I I do not believe will would allow mezzanine on their loans. So that's one thing to sort of be wary of. Also, community and traditional banks, I think the smaller banks would be less likely to use mezzanine, but the larger community or the larger regional banks may be more open to it because they see it more often.

Michael Russell 19:51

Yeah, but in my mind, I'm thinking, isn't that kind of a moot point? Because if you go get an SBA loan and you want to refinance. You're not going to go through the pain of setting up an SBA loan or a regular bank loan that's presumably going to have some sort of a prepayment penalty, right? Like you want more of a temporary first position loan, right? Isn't that the ordinary way you would approach this?

Suraj Desai 20:16

Yeah, I mean, I I would agree that someone who's doing an SBA loan, I mean, whether if you do a 504, you have a 10-year term. And if you do a 7A, you have a 25-year term throughout the entire amortization. But, you know, people have different strategies. Even for SBA, sometimes people still do a value add play. And when the market goes up and your numbers are going up, people feel rather than selling the property, they may as well just refinance, recroup some of their equity, and then cash out on some of the equity that they've sort of increased through time.

Michael Russell 20:45

Can you walk us through what the difference is between the SBA 504 and the 7A?

Suraj Desai 20:50

SPA 7A, the loan, the loan amount is capped at 5 million. And again, 80 to 85% leverage for hotels. I think in other asset classes, they may do 90%. But again, the loan amount is capped at 5. So if you if you're looking for a property over 6.25 million, you're sort of missing out on the 80% LT. So you'll have to fill in the gap for the remainder of the equity. It does use, it is typically a floating rate. So like say prime plus 100. It'll be prime plus 100 throughout the 25-year term in the 25-year amortization. But that's the one benefit. You never have to technically refinance again if you have an SBA 7A. Because along with the 25-year amortization, it's a 25-year term. So if you're if you want to just buy one property and then never sell it and keep it cash flowing, SBA 7A is a great option. Not to say that you have to do that, but allows that flexibility where you can carry that loan for the next 25 years. 504, 504 has the same cap of 5 million, but that's for the debenture piece. 504 is a unique product where the SBA portion is sort of a second lien on the property. And that that is called the SBA debenture. It's offered by CDCs. Like CDCs are non-profit companies. Each CDC is by state. So there's no federal or national level CDCs. And they're the debenture part of an SBA deal. So let's just use again that $10 million example, right? An SBA, you'll need to get a senior loan, a bank loan, a five that that they'll do, they'll provide five million dollars of leverage. And you'll have to go to the CDC. The CDC will provide a debenture that has a $3 million, that will be $3 million. So altogether, you're talking about an $8 million loan, and you'll have to come up with $2 million of equity. Like $504 is a more favorable product to most people than $7A because the rates are slightly better on $504, especially right now. The CDC debenture is 6.25. So even if your bank loan is at 8% with the CDC blended in, your rates are still low sevens. And historically, I would say the 504 product is typically a lower pricing than a 7.8 product. But the one negative about 504, it does take a little bit longer, especially if you're doing a value add deal. Like if you're doing a ground up construction or sort of a heavy lift, the bank has to hold 80% paper until the CDC pays them off. So again, using that $10 million loan amount, the bank will do an $8 million loan and they'll have to wait 60 to 90 days before that debenture comes in if it's cash flowing. But if you have to do a PIP, which is part of the proceeds, or if you have to do some major renovation, the bank will have to wait until that renovation is complete before that debenture comes in. So sometimes they don't want to take that 80% lever risk during that interim. So SBA 504, I do think that it takes more time to close, which sometimes on an acquisition becomes a little bit less appealing. But if you have the time, it's probably the more preferred product.

Michael Russell 23:59

Hey guys, at Malama Capital, we're always on the hunt for the next great hotel deal. And as you know, the best opportunities don't stick around for long. If you've got capital to deploy and want to invest alongside us, hit the link in the show notes and drop your email. You'll be the first to hear about new deals we're working on. Now, back to the show.

Nathan St Cyr 24:18

And I I was gonna say in that that the venture part or whatever you call that middle part that the CDC gets from the SBA, sometimes that first lender, they'll actually get that second piece. In the meantime, they'll go and they'll get a different lender to fund that. And then you pay for points and high interest and all that kind of stuff.

Suraj Desai 24:41

We've spent Yeah, you you can if the senior lender isn't comfortable doing the full 80% at close, they'll get sort of a bridge lender to fill in that gap and it'll be heavy price. So they don't have to take in that risk. And then when the debenture comes, obviously the so the bank's happy because to them it's a 50% LTV loan. The client's happy, the the borrower's happy because they get 80% leverage, and the government's happy because these sort of acquisitions and developments fuel fuel growth in the economy.

Michael Russell 25:10

So why does it take so long for this for the SBA to fund? You said that there's got to be this this middle this middle ground loan until the SBA will actually fund 60 to 90 days or so after technically you require the acquisition closes. Why? Why can't they close simultaneously?

Suraj Desai 25:28

Well, they they will close simultaneously, but the debenture has certain rules that the SBA has to abide by in order for the debenture to fund. So it's not the SBA that lends it, it's the CDC that lends the money. But when you're going through a 504 process, the best thing to do is to go simultaneously with the bank and the CDC because you'll have to run two different financing, like there'll be two credit memos, two approvals, and hopefully you guys use the same appraisal, but you'll have to run through the entire due diligence process with both the lender and the CDC. So after say it takes 45 days to run through that due diligence, you get the appraisals, they approve the loan, they give you a commitment letter. Then after that, the commitment letter from the bank and the CDC is both given to the CDC, and then they provide it to the SBA office, which is in Sacramento, and they get formal approval to allow the loan. The SBA office has to approve on every single SBA CDC debenter piece. And that sometimes takes anywhere from one week to potentially three to four weeks. So that extra three to four week process is what adds the timeline to the loan, where it's tough to close an SBA 504 in less than 60 days. I mean, I would say it takes anywhere from 75 to potentially 120 days. The delta and time being if it's a ground up construction, it'll take 120. If it's an acquisition, you may be able to do it in 75.

Nathan St Cyr 26:50

So we had a guest on that that said that they kind of they found through this process of going SBA several times where properties didn't didn't work out, but then they got to the one. But they they said that they through that process, they they recognized that there are preferred lenders and that ultimately with the preferred lenders, they were able to really expedite through their own when they hit the checklist through the preferred lender, because it was a preferred lender, it really took out a lot of the due diligence from the SBA and or the CDC and the lending institution. Is this can you shed some light on this?

Suraj Desai 27:34

Sure. So PLP, like preferred lending platform, that's a platform that that when people say preferred lender, they're talking about SBA 7A, not 504. So like even for 7A, technically the banks do have to get permission from the Office of Sacramento. They have to get approval with an SBA. But if you're part, if you're an approved PLP, like preferred lending partner, uh, you don't have to go to the SBA office to get approval on every deal. You can internally give approval and sign off on the deal, and that's for an SBA 7A deal. So those for 7A, I only use PLP lenders. I would never take an SBA 7A deal to a non-plp lender. It's just not worth it. It adds more time. And a PLP lender, typically a PLP lender has definitely done more SBA 7A loans than a non-plp lender. Because I think there are certain requirements you have to hit do a certain number of deals for a couple of years to get that PLP certification to the bank. So, but that that's predominantly for a 7A loan. I don't I don't believe there's any sort of PLP or preferred lending partner on the 504 side. I think any any senior bank can be part of that. But yes, the PLP is a preferred lender, is definitely something that I it's sort of a must for us, any deal that we do, that we would only do a preferred lender for an SBA 7A deal.

Nathan St Cyr 28:56

Got it. So it sounds like for ease of just in my mind, I'm going through all right, as we're searching for our next property, as we're negotiating these. If the deal size is 6.5 million or under, where the loan value is 5 million or under, 7A has the advantage of working with a a sourcing of the preferred lender where you can have all your ducks in a row, you're gonna go quicker, the the you're gonna have it amortized over 25 years, and you could actually keep the loan for over for that 25 year period. And really the only drawback there is that your your rate could be could be higher and it's it's floating. So if interest rates increase, you could you could come into some challenges.

Suraj Desai 29:43

I would agree. I think that that was perfectly said. I think it's prime plus. So that the only negative is that the pricing is a little bit higher and it does cap your loan amount. So when it caps the loan amount of five million, it also uh essentially caps your purchase price. But the one thing is you're allowed to have up to five million with SBA. So if you buy 10 deals, like say if you buy 10 deals that are 600,000 each, you can keep doing SBA 7A until you fill up your $5 million limit. Got it. Okay, great.

Michael Russell 30:16

Dude, I'm smiling here because I'm like, I love first of all, I love nerding out on this stuff. But the way you're explaining this really is helping me to just totally grasp all the different options and why one would do the different options with SBA specifically. So hey, the the way you've explained this, I hats off to you because sometimes this can feel a little overwhelming and complex. And maybe, maybe listeners gotta re-listen to this again to get it, but you just nailed it. You just explained that very well. So bravo. I do want to get out of the weeds a little bit though, if that's all right. And I want to shift gears.

Nathan St Cyr 30:47

Before we ship can before we ship gears, though, because I think that there's the one big piece that we missed here was just the bridge lending. What's what are the bridge lenders looking for? What's the what's the advantage of of saying, all right, we're gonna skip all this perm debt stuff and we're let's we're gonna go bridge.

Suraj Desai 31:09

I mean to me, bridge is my favorite thing to do in this business. I think most people love doing refines, but bridge is is where you really need to sort of know your stuff. You're buying a property for for 10 million, but you think it has a potential to be worth 15 million. Now you have to provide evidence and support to lender for them to feel confident that it's gonna be worth 15 million. Whether it's Star Reports, whether there's other competitors in the market that are achieving that type of performance, or whether it's track record demonstrating that you've been able to buy a property that was doing such and such revenue for the last 10 years, and how you'll be able to buy that property and increase that revenue by 25%, even though it has not seen a 25% increase in forever. So it takes some creativity, and I think that's sort of like my favorite product to do. But typically bridge, it it is it's not as pricey as Mes, but it is pricier, but it's interest only. So bridge, and I would say in the hotel space right now, I would say it's anywhere all in coupon is anywhere from nine to potentially 11 to 12 percent, and that 11 to 12% being like ground up construction or adaptive reuse where it's a super heavy lift. But if it's a cash-flowing deal that you're putting good equity in, then you'll be closer to that nine. But bridge is it's a more open product, especially when you want to invest capital into the deal. You want to re-market the deal. Say if you're doing a flag property and you're changing flags, anything that's transition oriented, I think bridge is a great product to go to. And bridge is also a little bit more, in my opinion, it's usually more reliable that the capital sources really want to close. They're incentivized the same way that we are. I think with banks, they do focus on whether they get accounts and other things and whether properties are within their footprint, where most of the bridge lenders have a national uh sort of geographical footprint so they could do deals everywhere. And as long as the collateral is good and the sponsor has some kind of track record of doing this, there's always opportunity for bridge. And I think you with bridge, you have to get a little bit creative because you have to sell a narrative that hey, this property is worth it because in in a couple years this it will perform this much. We have these comps, the sponsor has a track record. You have to get more creative to sell bridge, and I just think it's a great product, especially where when you're in the market of value add. Awesome.

Michael Russell 33:37

All right, quick summary then. You walk through, there's banks and credit unions, there's the SBA route, there's bridge loans, CMBS, life insurance. So, real quickly, right now, what you kind of walk through the rates, bridge nine to 12%. You talked about SBA and those rates being what seven to eight percent, something like that for for SBA.

Suraj Desai 34:00

For SBA, I mean the senior lender can any can be like what typical market pricing on hotels right now, six and a half to potentially 10%. But the debenture piece right now throughout the country, I think most debentures that are 25-year amortization around like I think I think around six and a quarter. So they do fluctuate as treasuries fluctuate. But right now the debenture piece is about 6.25 or around there on a 25-year ammo rate.

Michael Russell 34:25

Okay, so maybe you average it out, who knows? Maybe it's around seven, eight, eight and a half percent, just kind of depends on each situation. Let's talk about what you're seeing for traditional bank and credit unions. What are rates looking at right now?

Suraj Desai 34:37

I mean, uh for a hotel, I would say best case scenario, low sixes, but it's hard to find. But I I would say as high as uh prime plus a hundred. So I would say eight and a half percent. So anywhere within that realm. I know that's a really large range, but that's just the reality of what we're seeing in the market, where if it's if it's a cash-flowing deal and it has a long history of cash flow and has a good DSCR, the bank will be all over it. You may find a bank that has really low pricing. But right now, I think the biggest hurdle is just finding a good capital source ready to finance. So I think banks know that there's limited capital out there. So because they know that there's limited capital out there, there's only gonna be so much incentivizing from their end to give you the lowest rate possible because they know that it's not as available in the market. The capital's not there. But I think the the quotes that we've been getting on the lowest end, I would say is around six and a quarter, but it could be we've seen as high as prime plus one and a half at like nine percent.

Michael Russell 35:36

All right, so I want you to grab your crystal ball and I want you to tell us you you're gonna hear it live here, folks. We're gonna get the truth. Now I'm I'm setting this up, I'm teasing. Okay, I know you don't have a crystal ball, but what what can you tell us about where you expect rates to go moving forward in 2025?

Suraj Desai 35:52

I mean, I I get this question uh asked all the time. I I'm not purview to any additional news that that you that the market isn't purview to. Like I think the same stuff that you guys are reading in the news every day is the same stuff that I'm reading. Obviously, even when I talk to lenders, to them, no one has a firm footing, but people do anticipate them to continue to go down, but it will happen much slowly than it has over the last 18 months. Obviously, we've seen Prime go down about a hundred basis points over the past, what is it, 12 to 15 months or 12 months, that process is gonna go slower. Historically, I think since 1971 till to 2025, the 30-year mortgage rate for residential has been 5.4. And right now I think it's what six six point seven or six point six. So even though I think we've gotten too accustomed to 2021 and 22 or 2019 where rates were at an all-time low when maybe we got used to that rate market, but historically, these aren't super high rates right now. If they go down to under basis points, that's been sort of the history, like US history's average rate on a 30-year home mortgage, like residential mortgage. So I I I don't know how much, but I would say over the next year or two there they they will continue to lower rates, but it'll all be data-driven, which they'll look, they'll look at GDP, they'll look at how how inflation is. I mean, the same stuff that you're reading is the same stuff that I'm reading. So I don't want to overspeculate, but I do anticipate them to continue to go down, but it just won't be at the level that people are sort of accustomed to because I think that we had a really good time during 2019, 21, and 22. I I don't know if that time will come back for a while.

Michael Russell 37:38

Right. All right, you heard it live, folks. So I just predicted rates are going down. No, I'll just all right. I want to ask you a tough question. So you mentioned that working with local banks is a good option, particularly if you can build a relationship. And if you don't have the track record and you're just getting started, maybe you're gonna lean on that relationship a little bit. But when it comes to you and your services, you've got access to all these different financial options, which I get. But my question is why would someone call you and go through you and pay your broker fee versus just calling a bank directly and trying to work that relationship directly? What is the advantage of employing you and your services?

Suraj Desai 38:18

Well, first, we have relationships with a lot of these lenders. We know when a lender is really working on a deal and we sort of know what's in a credit memo and what's sort of being delivered so we can have more control. And I just think that we execute better. I mean, I think people can always call a lender themselves, but these bank originators, you can't oh you don't always know what they're doing. And to get the best rate available, that's why you come to us because we'll go through the entire market. We won't just take it to one lender. We use a lot of different sources to get our list. And when it comes to bridge lenders and traditional banks, especially a lot of times we just use the same banks that we've worked with because we know that they have an ability to close and do exactly what they said they would do. The last thing that you want is to take a loan, call directly, and then find out that you got retraded at the very last second where you thought you had to put, again, using that same $10 million example, the bank told you 25% down, 25% equity. So you were ready with two and a half million, and then after they get the appraisal, all of a sudden you have to put in 4 million. Uh so I think that we have control, we have full navigation of the market, we'll go wider than everybody. And we sort of know if the deal is actually moving forward. We can push the lending process. I think our underwriting, we know how an appraiser values property. Uh, we know exactly how the credit memo will value the property, we know exactly what kind of comps to bring in. Uh, I just think that we have more capital sources. I think when you have more capital sources and you send it to the right capital sources, you have the highest chance of getting the best deal possible. And firm sends.

Nathan St Cyr 40:00

Sense of execution. So when you so so when someone works with you, what it sounds like you're saying is as a broker and what you do, you're not just referring them to the source. You're staying with them through the entire process and defending them and help helping them all the way through.

Suraj Desai 40:22

Absolutely. I mean, after a deal, say we make a package on every deal. It doesn't just have the underwriting, like the financial models. It'll have comps in the market. It'll have details about the market itself. It'll have a bio and narrative on the borrower. And I would say 75% of the time we've seen, especially the banks that have given us their credit memo. Usually they don't, but obviously lenders that we've worked with for a long time, they've given us their credit memo just to let us see it. They've copied and pasted most of this stuff in our OM into their memo. I mean, I think we do a good job, but then say we we get the term sheet from the bank and our client signs the term sheet. That's not where our job ends. We sort of navigate the entire process. We deal with the appraiser. Um, I sort of want to even control the appraisal process to make sure that there's no chance of it going short. I want to make sure that any questions the appraiser has, they have the full sort of data points that we have, they get all the comps that we have, and sort of make sure that nothing sort of wrong happens in the middle of the process. And also make sure that the lender is committing to their timeline because when people are purchasing property, there's a timeline, there's a clock on that purchase sale agreement. We want to make sure the lender is abiding by that.

Nathan St Cyr 41:37

So you're gonna know if something's going wrong, right? The timeline, whatever, you're gonna know you're gonna know that. You're gonna be on top of that. And then you're gonna you're gonna help resolve it or work with your the purchaser. So there's there's a they're not just out there on their own, and six, eight months later, all of a sudden you're like, oh, I forgot that you were in our pipeline.

Suraj Desai 42:02

Yeah, I mean, we we know exactly what happens in any sort of lending process. So we we make sure everything, the third parties are moving, the bank's moving on its own internal credit memo. We push them on their final credit committee approval. So making sure the title company is engaged near closing. So we make sure every single part of the process is there. And if they have any questions, we sort of help the sponsor navigate. We make sure we look over the material that they send us before we send it to the bank. We try to avoid having the borrower send something directly to the bank in case just to make sure that we sort of know what kind of questions would arise ahead of time, so we know what to respond with.

Nathan St Cyr 42:43

Strategically. Let's get ahead of it before we create an objection.

unknown 42:47

Yeah.

Michael Russell 42:47

Yeah, I can attest that having been Nathan and I have we've gone through this process now several times, and it's it's been painful every time. And I will say the first time we were completely naive to anything. We didn't know what to expect. And I don't want to say we were getting pushed around, but we certainly weren't seeing like this smooth calibration of like, okay, all the things that need to get done are going to be done in a timely manner. So it's just this little bit of frustration working with a bank directly because we didn't really have the experience or the know-how of what to expect and what to push for. And so I liken this to a little bit like hiring a general contractor in a sense, where not only does the general contractor, or in your case, a loan professional, know the mechanics of the process and the timing of each component and how it needs to be done and is kind of orchestrating all of that. But also there's a little bit of leverage because, for example, back to the contractor analogy, if you're just a one-off customer, then you know, if you're not satisfied, well, move on to the next customer. But if let's say you hire a general contractor, they can lean into their subs, they can press their subs because the subs want more work from that general contractor. And so I found that there's a little bit of trade-off in this, again, analogy or in the situation where you might pay a little bit of a premium to hire that general contractor, in this case, a loan officer, but golly, it could save a lot of pain and a lot of heartache if what you're describing really kind of smooths this transition, expedites it, time is money. And if there's a little bit of leverage there to press the bank to perform, then it could make the difference between closing or not closing.

Suraj Desai 44:26

I mean, I I think that's essentially what we do, similar concept where I think it comes down to control. We do a good job controlling the process to help you become help borrowers become successful. And I think if someone knows some bank, and if they have a low rate, people just think, what's the point of paying a fee? That makes sense, but not every transaction's like that. Again, every acquisition has a timeline, every refinance has a timeline. And to get out, get your deal out quick to all the right capital sources in an efficient amount of time, someone to handle all those calls and to sort of talk with the banks, communicate every single detail with them and sort of get you sort of best in class service, best in class terms, and sort of control the execution, I think will always be in business.

Nathan St Cyr 45:10

As we look at different asset classes, this is one of the things that we're going through, like within the hospitality market, right? We look at different asset classes. Where's the where's the greatest appetite? Or does it not matter? Is it really just based on what you're bringing to the table? Is there a specific area within hospitality that banks are the most bullish on?

Suraj Desai 45:33

I mean, it's been the same thing for the last 20 years, where I would say select service branded hotels. Obviously, extended stay market had a has been a big boom for the last 10 years. But I I would I would say it's a similar concept, anywhere from upper mid-scale to upper upper scale, that sort of select service, extended stay, branded hotels, that that's what banks sort of love, right? Good fly, I mean, Marriott Hilton, IHE, good flies, where they know there's a strong reservation system, so they know that they'll get some business strong operators because they're larger dollar acquisitions, and there's star reports and historicals that they can rely on, right? I mean, boutique hotels, they don't always come with a star report because people don't always get them. So the materials there, they believe in the brand, they believe in the in the box, they believe in the strategy, and they believe in the data. So I think it's sort of an easier sell to them. But that being said, I think there's an appetite for most hotels as long as you find the right capital source. But I think that's the sort of deal type that you know, the Holiday and Expresses, the the Marriott town places, the home twos, the Hampton ins, I think that's sort of what lenders are most bullish on. And then typically, obviously the tourism markets, waterfront properties, beachfront properties, high tourism areas, Vegas, Austin, Miami. I think the those those the Sunbelt markets are what's sort of hot right now.

Michael Russell 47:00

Yeah. So location and the capacity to operate and what you're describing with these branded, branded companies, that mirrors a lot of what we heard when we we hosted another guest who predominantly operates flag branded hotels. And coming from our experience where we're we're independent, right? Our properties, we self-manage and we operate them independently. And so from our perspective, we're like, why the heck would we hire a brand? We're gonna pay all these fees and they're gonna have all these requirements. And there's all these like you just kind of focus on all of the potential challenges or obstacles that that would prevent you from wanting to go that route. But what he brought up, similar to what you said, is well, but funding. The banks are gonna offer you presumably a lower interest rate, and it's gonna be easier and you're gonna be more eligible to finance, which it doesn't just benefit you as the operator. You got to also look at the exit strategy. If you're gonna want to sell this thing, and we have this question all the time is who's our buyer? Who's gonna buy this thing? And so that point resonates with me very much. We go back and forth and we weigh out the pros and cons of each, but if we're drawing a T chart and we're listening out the pros and cons of going the branded route, that's definitely gonna weigh heavily on our decision. Is well, financing and exit strategy.

Suraj Desai 48:20

I mean, one one thing about the boutique space, right? It's a really solid space, but it's also very new. I mean, there's been boutique hotels for the longest period of time, but sort of its trajectory and it is strong, I I would say. A lot of these mom and pop properties, motels are now turning into people are buying them, putting in money, and then using new marketing tools, whether it's social media to really get things trending. I mean, it's sort of a new way of the business, and I think it's it's here to stay. The financing will follow after. Once people see the value in these properties, I mean, there's already banks that are seeing the value in them, but I think aside from just the collateral itself, track record is always key. If you have the track record, even if it's a smaller, not unbranded boutique property, there's still a case for financing.

Michael Russell 49:15

Okay, well, so as we wrap this up, I've got one last question for you. Can you tell us what's one hotel deal that you have helped fund that you're you're especially proud of and and why?

Suraj Desai 49:26

I think there's two deals. One would be a deal that we did, a construction, ground-up construction deal that we did in Reno, Nevada. It was two deals. It was a tertiary market called Winnemucca, Nevada, and then Reno, Nevada, a fair field and a large courtyard. I guess the main reason we were proud of that deal was we closed it in May of 2020. So right during COVID, when like all lending has stopped, we got our capital sources stay committed and then closed that deal. So people thought there was no lending in 2020, but we actually closed three hotel deals in 2020. We closed about $60 million or $70 million of hotels after March of 2020. Um and that this one was in May. It was a $37 million bridge loan that we closed in May. But I I think the I I would say the the Vegas property that I talked about earlier that we did 90%. And then a year later we refinanced it for the same dollar amount. We we did a $52.5 million dollar loan, which was senior plus mez. And a year later we did $54 million to exit, pay the exit fees for the bridge lender. So it was cash-neutral refinance on a fully permanent loan. So I think we got to do a large loan amount twice, but more importantly, we executed on our business plan. Our our client did as well. I mean, our client mainly was the one to execute the business plan, and it was an economy hotel. It was branded, but it was an economy segment, which most lenders aren't always the biggest fans of at that time, but we were able to execute on those. I think those two projects, just because it was it's tougher to find capital for that. Uh, 90% leverage is almost impossible. And closing during COVID, people thought it wasn't done at all, but we actually closed multiple deals in in 2020 during COVID.

Michael Russell 51:10

Yeah, heck yeah, that's a tall order. During that period, man, that was tough sledding. So any deal is tough sledding, but particularly during COVID. Look, this this whole deal of getting financing, it it's it's a lot of work. It's not easy. And you just dropped a lot of knowledge, a lot of helpful tips. If our listeners wanted to get in touch with you, or if they need a loan, how can they how can they get a hold of you?

Suraj Desai 51:33

No, absolutely. I mean, I think the best way is through just communicating via call or email. So my email address is sdesigh at bbcp-lc.com. I'll provide it to you guys, but my first uh the first letter of my name and then desi at at bbcp-lc.com. And then always feel free to call or text uh 773-314-7659. I love to talk to clients. I like to hear out their deals, see what they've done before. And I think every deal has a story. So I think the best way is to just like sort of talk out a deal rather than just going through email. So I think the best thing is to just text or call and thus get on a phone, uh phone call to talk about any deal that anyone has or any guidance somebody needs. Doesn't have to be a deal, even if it's advice. Happy to help.

Michael Russell 52:19

Heck yeah. Perfect. Yeah, of course, we'll put all of that contact information in the show notes. But Siraj, heck yeah, man, it's been great. I've enjoyed this conversation. I want to stay in touch with you. You provide a lot of, like I said, a lot of knowledge, a lot of help. So this has been great. We are Mike and Nate. He is Siraj Desai, and we are signing off with another episode of the Hotel Investor Playbook. We'll catch you next week. Aloha. Thanks for hanging out with us today on the Hotel Investor Playbook. If you got even one good nugget of wisdom about hotel investing, do us a favor, hit that subscribe button and leave us a five-star review. And hey, if you're feeling extra generous, drop a quick line in the review section. Something like Mike and Nate are the go-to hotel investing guys, or best podcast for anyone looking to crush it in hospitality. Or, you know, whatever feels right. Those little shout-outs go a long way in helping more people find the show. And they pretty much make our day. All right, appreciate you guys. Catch you next time.