The hospitality industry boom in the United States is continuing into 2018, experts are predicting, and the year is looking especially good for Northern California. People will be traveling and spending more, and they will be looking for more than just a place to sleep in a hotel. “Experience” will be the new focus in hospitality this year.
Hospitality Gets Hi-Tech and Personal
This year is set to be a good one for the hotel business. Travel is increasing both for business and pleasure. California broke a record in 2017 for most hotel rooms coming on to the market, with 10,793, and 2018 is expected to break that record. As demand for lodging is met in the area, tourist habits will be permanently altered, with more people traveling through the area for extended periods, rather than making day trips from cities in the San Francisco Bay area.
Economists say consumer spending is rising, and an increasing portion of that spending is going toward recreation, travel and entertainment. For example, in wine country, a new generation of hospitality is bringing visitors out of the tasting room to be engaged and entertained with a more comprehensive “grape-to-glass” wine experience, according to San Francisco’s SB Architects.
California is also the latest region where pod hotels have taken root. The tiny-room concept was developed in Japan decades ago and has been slowly making its way around the world. There is a range of pod options in New York City already, but only a handful of them in all of California. Now London-based pod hotel chain Yotel is about to open a 200-room pod hotel in San Francisco’s Mid-Market neighborhood.
Pod hotels provide more privacy that a hostel and a varying degree of greater affordability than full-scale accommodations. Pod hotels perform well in comparison with rooms in the same price range because they cater to “people who want high quality and design but also want a boutique feel,” according to BD Hotels co-founder Richard Born, who expects the pod niche to expand rapidly in major markets. His company plans to open a pod hotel in Los Angeles in 2019.
How Can Small to Mid-sized Businesses Capitalize On This Trend?
Consulting giant Deloitte observes in its 2018 Travel and Hospitality Industry Outlook that most recent market expansion nationwide has been in the high end, but competition is going to stiff in the mid-scale market this year. That market is “in desperate need of an experiential facelift,” the Deloitte authors write. This segment is cheaper to develop than luxury hotels and requires less staff when completed, so it is more accessible to small business owners.
“Incorporate modern design aesthetics and reimagine communal spaces,” Deloitte advises, “to create an experience that is unique and memorable.” The travel industry has been full of innovation for the past few years, making the industry more “personalized,” so this task is becoming easier all the time.
San Francisco hospitality consultants AF&Co. concur with Deloitte in pointing to wellness and interactive technology in their 2018 Hospitality Trend Report Overview. Fancy showers and adjustable lighting in rooms, healthy menu (or delivery) options and spa-like communal spaces will make guests of mid-scale facilities feel cared for.
Financing Your Hotel Expansion in 2018
In order to stay ahead of the game and capitalize on this industry boom, it’s clear that expansions and upgrades are good options for the small business owner. However, conventional financing for such things is becoming harder to secure in the hotel industry. Partnering with a Certified Development Company (CDC) to receive a Small Business Administration (SBA) 504 loan will make your project more attractive to banks. A conventional lender provides 50% or more of the total project cost in a 504 loan, and receives first lien position, lowering its risk considerably.
A CDC facilitates the SBA loan for up to 35% of the total cost, or $5 million ($5.5 if the project is eligible for the Green Energy Program), at a fixed, below-market rate. The remaining 15% is the down payment supplied by the borrower. That is the down payment for facilities the SBA deems single-purpose properties. The down payment on a 504 loan is 10% otherwise. The 504 loan has terms of 10 and 20 years, with a 25-year term coming soon. It is fully amortized, so there are no balloon payments.
- 50% Conventional lender
- 35% CDC
- 15% Borrower
A 504 loan can be used to:
- purchase land or buildings
- construct, upgrade or renovate buildings
- purchase equipment with a service life of ten years or more
- refinance conventional debt
Hotels are often high energy users, which means they have high potential for participating in the Green Energy Program. There are three ways to qualify for the program:
- Buy or construct a building that consumes 10% less energy than your current location
- Make upgrades to the building you own to consume 10% less energy, or buy the building you now lease and do so
- Buy or construct a building that produces 10% of the energy it consumes or that produces fuel to reduce fossil fuel consumption, or buy equipment to do so at your current location
Any of those actions will create long-term savings on utility bills, and generate interest from the green-conscious segment of the hospitality audience. It will also open up exceptional financing opportunities, as allows the borrower to exceed traditional 504 loan project limits and borrow up to $16.5 million.
You can find out more about financing you hotel expansion from one of TMC Financing’s 504 loan experts. TMC is the No. 1 504 hotel lender nationwide. It operates in California and Nevada and is an SBA high-volume, Premier Certified Lender. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.
- Using the SBA Green Energy Program to Increase Commercial Financing - April 18, 2023
- What Is a Certified Development Company? - May 12, 2022
- Turn Equity Trapped in Real Estate into Cash with the SBA 504 Program - April 23, 2020