Pioneer Realty Capital arranged a $5.59 million construction loan for Candlewood Suites Limited Service Hotel on behalf of Grekan Hospitality, the firm announced in a statement on Monday. The hotel will be located in San Angelo, Texas.
Pioneer characterised the loan as being somewhat difficult to arrange given the borrowers’ limited experience and investment capital. Grekan struggled to find financing for the construction in the early going, and was eventually referred to Pioneer by one of the firm’s other clients.
The Bank of San Angelo rejected the loan at first, citing risk exposure during the construction period, Pioneer founder Charles Williams told Private Debt Investor.
“When we initially submitted the deal to them, they took it to their committee and declined the deal,” Pioneer founder Charles Williams told Private Debt Investor, adding that The Bank of San Angelo had a lot of capital to put to work on its balance sheet at the time. “It only made sense to make a loan like this, in their backyard. So we contacted them and said, ‘Hey, there’s got to be a reason to not make this loan’.”
Pioneer mitigated construction risk by bringing in Lincoln Capital to take a 35 percent stake in the financing through the use of a bridge loan structure that covers the bulk of the construction phase, he said. The use of a secondary lender that specialises in bridge financing assuaged the bank’s concerns.
“Your structure at the end of the project, with permanent financing, is a first mortgage with San Angelo,” he said. A secondary mortgage with the North Texas Certified Development Corporation will take out the Lincoln Capital’s bridge loan.
“When they get their certificate of occupancy, North Texas CDC will take out the Lincoln Capital bridge loan.”
Pioneer provides bridge loans, mezzanine financing, conventional loans and SBA financing to commercial real estate projects. The firm can also provide preferred equity real estate development projects. The firm is headquartered in Arlington, Texas.