Hotel Repositioning & Flag Change
Bridge financing for acquisition, renovation, and brand conversion of a select-service hotel.
Deal Overview
| Property | 94-key select-service hotel |
| Location | Montgomery County, Maryland (Suburban DC) |
| Strategy | Acquisition, renovation, and flag conversion |
| Total Capitalization | $9.2M |
| Timeline | 22 months |
The Situation
An experienced hospitality operator identified an independent hotel operating significantly below its potential. The 94-key property—built in 2005 in a strong suburban DC submarket—was suffering from dated interiors, poor online reviews, and lack of brand support.
The operator saw an opportunity to acquire the asset at a discount, complete a comprehensive renovation, and convert to a nationally recognized select-service brand with strong reservation system support.
The challenge: The property's poor operating performance disqualified it from conventional hotel financing. The operator needed bridge capital to fund acquisition and the Property Improvement Plan (PIP), with a clear path to permanent financing post-stabilization.
The Challenges
Underperforming operations
RevPAR 25% below competitive set; occupancy at 58%
Significant PIP requirements
Brand conversion required $2.4M in property improvements
Franchise approval timeline
Brand wouldn't issue franchise agreement until acquisition closed
Extended stabilization
18+ months projected to reach stabilized performance
Our Approach
Brookmont structured a hospitality-focused bridge solution:
1. Hospitality-Specialized Lender
We identified a debt fund with dedicated hospitality expertise that understood PIP financing and brand conversion economics.
2. Full Capital Stack
The bridge loan funded acquisition, PIP costs, interest reserves, and operating shortfall during renovation—providing a single capital solution.
3. Franchise Coordination
We worked with the lender to structure approval contingent on franchise agreement, aligning closing timelines with brand requirements.
The Capital Structure
| Purchase Price | $5,800,000 |
| PIP / Renovation Budget | $2,400,000 |
| Interest Reserve | $650,000 |
| Operating Reserve | $200,000 |
| Closing Costs | $150,000 |
| Total Project Cost | $9,200,000 |
| Bridge Loan | $6,800,000 | 74% |
| Sponsor Equity | $2,400,000 | 26% |
Bridge Loan Terms
The Execution
Months 1-2: Acquisition
- Closed acquisition with bridge financing
- Secured franchise agreement with national select-service brand
- Began design and permitting for PIP
Months 3-10: Renovation
- Completed phased renovation while maintaining partial occupancy
- Renovated all 94 guestrooms (new furniture, fixtures, finishes)
- Upgraded lobby, breakfast area, fitness center, and exterior
- Installed brand signage and technology systems
Months 8-12: Rebranding & Ramp-Up
- Converted reservations to brand system
- Launched marketing under new flag
- Rebuilt online presence and review ratings
Months 12-22: Stabilization
- Grew occupancy from 58% to 74%
- Increased ADR from $89 to $129
- Achieved RevPAR growth of 92%
Month 22: Permanent Financing
- Refinanced into CMBS permanent loan
- Returned sponsor equity and captured value creation
The Outcome
Operating Performance
| Metric | Before | After | Change |
|---|---|---|---|
| Occupancy | 58% | 74% | +28% |
| ADR | $89 | $129 | +45% |
| RevPAR | $52 | $95 | +83% |
| NOI | $380K | $920K | +142% |
Value Creation
Sponsor Returns
Key Takeaways
1. Brand conversion unlocks value
The franchise flag provided reservation system access, loyalty program participation, and brand credibility—transforming an underperforming independent into a competitive branded hotel.
2. Hospitality requires specialized capital
Bridge lenders without hotel experience struggle to underwrite PIP economics and operating ramp-up. Hospitality-focused lenders understand the business plan.
3. Phased renovation preserves revenue
By renovating in phases while maintaining partial occupancy, the operator generated cash flow throughout construction—reducing carrying costs and capital requirements.
4. Long timeline requires patient capital
The 22-month timeline from acquisition to refinance required a lender comfortable with extended bridge terms and realistic about hospitality stabilization periods.
This case study represents a representative transaction. Specific details have been modified to protect client confidentiality.