Light renovations: cash reserves or a modest draw facility
For smaller-scope work — furniture, fixtures, soft goods refresh — many owners fund from accumulated FF&E reserves (typically maintained at 3%-5% of revenue) or a modest revolving or draw facility from their existing lender, without needing a dedicated renovation loan.
Mid-scope renovations: dedicated renovation term loan
For room and public space renovations in the mid six figures to low seven figures, a dedicated renovation loan — either from the existing first mortgage lender as a supplemental facility, or a new alternative lender — structured with a draw schedule tied to completion milestones is typical, often with an interest-only period during construction converting to amortizing payments once complete.
Full repositioning or gut renovation: bridge-to-permanent structure
Larger repositioning projects that meaningfully disrupt operations for an extended period are usually financed with an interest-only bridge facility sized to the full project cost plus a carrying cost/interest reserve, with a planned refinance into permanent term debt once the renovated property has 12-24 months of stabilized post-renovation operating history.
Key underwriting questions for any renovation loan
Regardless of scope, lenders will want clear answers to a consistent set of questions:
- What is the detailed scope of work and contractor cost estimate?
- How will operations be maintained during construction (phasing plan, room closures)?
- What is the expected post-renovation NOI and how was it derived?
- What is the source of the equity contribution and contingency reserve?
Avoiding common renovation financing mistakes
The most frequent issues are underestimating contingency (aim for 10%-15% on top of contractor estimates for older Toronto hotel buildings), underestimating the revenue disruption during the renovation period, and failing to line up take-out financing before the bridge facility matures.
Frequently asked questions
- Can I use my existing hotel mortgage lender for a renovation loan?
- Often yes, particularly for mid-scope renovations, where a supplemental facility from your existing lender avoids the cost and complexity of arranging an entirely new relationship — but always compare against alternative or private options for larger or more disruptive projects.
- How much contingency should I budget for a Toronto hotel renovation?
- Beyond the contractor's cost estimate, budgeting an additional 10%-15% contingency is prudent for Toronto's older hotel building stock, where unexpected conditions behind walls or in mechanical systems are common.
- What if my renovation takes longer than planned and my bridge loan matures?
- Discuss an extension with your lender well before maturity; most private and alternative renovation lenders will extend for a modest fee given a credible completion and stabilization timeline.
Talk to a Toronto hotel financing specialist
We arrange hotel, motel and resort debt across Toronto, the GTA and Ontario — acquisitions, refinancing, construction and PIP capital, and short-term bridge loans — through banks, credit unions, secondary institutional and private lenders.