The accommodation industry is so stressed that some property sellers are willing to lend to potential hotel buyers in the same way car dealers finance vehicle sales: Offer cheap rates and sometimes with little money. silver.
Banks and landlords want to get rid of unprofitable hotels that offer little prospect of short-term recovery. But offloading them at bargain prices would lead to losses on their balance sheets. So some are turning to what is called seller financing.
With the purchase of a typical hotel, a real estate buyer pays the seller the full purchase price up front and partially finances the transaction with mortgages. But these loans have been more difficult to obtain with the struggling accommodation industry.
Vendor financing is the real estate equivalent of buying a car with dealer financing. A hotel buyer only pays a portion of the price up front, usually between 25% and 50%. The rest is treated as a seller-to-buyer loan, and interest rates are often much lower than traditional mortgages.
For sellers, the practice avoids painful write-downs in the present, but it also risks only delaying a calculation. By lending to the new owner, they remain attached to the hotel and risk losing money if the still-soft accommodation market does not recover soon enough.