Hotel and motel financing in BC
Lenders underwrite the business, not just the building. Here is what that means for your file.
The short answer
Hotels and motels are financed conventionally at 55 to 65 percent leverage on a stabilized property with 35 to 45 percent down, because CMHC does not insure hospitality.
| What | Typical | Why |
|---|---|---|
| Leverage | 55 to 65 percent on a stabilized property | The loan is sized on the cash flow the operating business produces |
| Down payment | 35 to 45 percent | You are buying a business as well as real estate, so lenders discount the going concern value |
| Insurance | None available | CMHC insurance covers residential multi unit housing, not hospitality |
| Income history | At least three years of daily rate, occupancy and revenue per available room | Compared to the local competitive set and to seasonality in the market |
How lenders underwrite hospitality
A hotel is an operating business attached to real estate, and the loan is sized on the cash flow that business produces. Underwriters read average daily rate, occupancy and revenue per available room across at least the last three years, then compare them to the local competitive set and to seasonality in the market. Departmental expenses, management fees and a reserve for furniture, fixtures and equipment all come out before the income used for debt service coverage. Franchise status matters too: a flagged property brings reservation systems and brand demand but also brand standards and a licence that has to be transferred, while a strong independent lives or dies on its own reputation and location.
What strengthens the file
Two to three years of accountant prepared statements plus current year to date figures do more for pricing than anything else. Add monthly occupancy and rate detail, a franchise agreement or licence where one exists, a costed property improvement plan budget for flagged properties, and a capital expenditure history for roof, mechanical and rooms. Operator experience is weighted heavily: a buyer who already runs hospitality assets, or who brings a credible third party manager, changes the risk view. Read the broader commercial mortgage requirements for the borrower side of the test.
Structures that get used
Almost all hotel debt in British Columbia is conventional. CMHC does not insure hotels, so there is no insured route to higher leverage the way there is on apartments. Banks will look at larger flagged properties with proven cash flow, several credit unions are genuinely active on regional and highway motels, and alternative lenders cover repositioning, seasonal operations and files that need to move quickly. Expect 55 to 65 percent leverage on a stabilized property, shorter amortization than a multifamily building, and full recourse. Where a purchase involves renovation or a flag change, a short term facility often funds first and a conventional loan takes it out once the numbers stabilise. Hospitality sits with the other hard to finance property classes where lender appetite, not the building, decides the outcome.
Hotel financing questions.
Buying or refinancing a property?
Send the last two years of statements and the room count. We will come back with what the market will lend.