Hotel Loans. How To Finance a 5-Star Hotel or Resort

Developing a 5-star branded hotel or luxury resort requires sophisticated financing solutions, especially for projects exceeding $250 million.

For project owners and sponsors, understanding the nuances of hotel loans, construction financing, and long-term capital structuring is critical to success.

Why Luxury Hospitality Financing Demands Specialized Expertise

Unlike conventional real estate projects, 5-star hotels and resorts face unique challenges:

• Higher construction costs due to premium materials and brand-mandated designs
• Extended stabilization periods (5-7 years for full ROI)
• Seasonal cash flow volatility in tourist-driven markets

This complexity means developers need hospitality financing partners who understand the sector’s intricacies—from commercial construction loans to permanent financing solutions.

Construction Financing: Building Your Vision

Commercial Construction Loans

These short-term loans (typically 3-5 years) cover:

• Land acquisition
• Permitting and site work
• Hard construction costs

Lenders typically provide 60-75% loan-to-cost (LTC) for qualified hotel development projects, with better terms for branded 5-star properties.¹

Construction-to-Permanent Financing

Increasingly popular for luxury hotel developments, this hybrid solution:

• Combines construction funding and long-term debt into a single closing
• Eliminates refinancing risk upon project completion
• Often features competitive fixed rates after construction

For example, a 5-star resort in the Caribbean might use construction-to-permanent financing to secure favorable terms from groundbreaking through stabilization.

Permanent Financing for Stabilized Assets

Once operational, hotels transition to permanent financing options:

Option	Key Features	Best For
CMBS Loans	Non-recourse, 10-year terms	Large portfolios
Balance Sheet Lenders	Lower rates, strict covenants	Branded flagships
Private Debt Funds2	$250M+ loans, flexible terms	Ultra-luxury developments

Specialized Financing for Luxury Properties

Private Debt Solutions

Experienced hotel lenders specializing in luxury properties offer:

• Higher leverage (up to 75% LTV)
• Longer amortization periods⁴
• Brand-friendly covenants

Institutional Partnerships

Sovereign wealth funds and pension investors frequently participate in:

• Destination resort financing
• Government-backed tourism initiatives³
• 5-star hotel development in gateway markets

What Lenders Look For in Luxury Projects

To secure optimal hotel construction financing, developers must demonstrate:

1. Brand Affiliation
   Franchise agreements with operators like Four Seasons, Waldorf Astoria, Six Senses or Mandarin Oriental significantly improve financing terms.
2. Sponsor Track Record
   Lenders prioritize teams with proven experience in luxury hotel development.
3. Market Feasibility
   Robust studies showing realistic occupancy and ADR projections are mandatory.
4. Prime Location
   Resorts in established destinations (Dubai, Maldives, Swiss Alps) command better terms.

Overcoming Common Challenges

Challenge: High equity requirements (25-40%)
Solution: Partner with institutional investors through joint ventures

Challenge: Interest rate volatility
Solution: Lock in fixed-rate terms during construction

Challenge: Brand approval delays
Solution: Engage franchise consultants during pre-development

Next Steps for Developers

1. Prepare a comprehensive financing package including:
   • Brand letter of intent
   • Feasibility study
   • 3-5 year pro forma
2. Engage hotel lenders early in the process
3. Structure financing to align with your project’s:
   • Construction timeline
   • Brand requirements
   • Long-term ownership strategy

For 5-star hotel and resort developers, securing the right financing partner makes the difference between a visionary project and a stalled development.

By understanding these specialized financing solutions, you’re positioned to move forward with confidence.