How much equity can you actually pull out?
Hotel refinances are sized off the appraised going-concern value and normalized NOI, not a rough estimate of what the property might sell for. Conventional lenders generally cap leverage at 50%-65% LTV, occasionally to 70%-75% on strong flagged assets, and the loan must clear a 1.25x-1.40x DSCR minimum against stabilized cash flow. Subtract your existing balance from the maximum supported loan amount, and the difference - minus costs - is what is available.
- Going-concern appraised value × lender's LTV cap − current balance = ceiling before costs
- DSCR against normalized NOI can cap you below the LTV ceiling even with strong equity
- Unflagged or shorter-operating-history properties are capped more conservatively and often placed with secondary institutional or private lenders
Refinance, bridge, or a PIP draw facility?
These solve different problems. A straight refinance replaces the existing mortgage at improved terms once NOI has grown or rates have moved. A bridge loan is interest-only, fast to close, and used when the property does not yet qualify for conventional terms - a recent acquisition, a renovation in progress, or a temporary occupancy dip. A PIP draw facility funds a franchisor-required renovation in stages, with a take-out refinance once the work is complete and the flag renewed.
- Refinance: best once two to three years of stabilized, growing NOI supports better terms
- Bridge: best for recent acquisitions, repositioning, or a temporary performance dip
- PIP facility: best when a franchisor renovation requirement is the trigger, with a defined take-out plan
Penalties and prepayment costs
Breaking a fixed-rate commercial mortgage mid-term typically triggers a yield-maintenance or interest-rate-differential charge, and these can be larger in dollar terms than a residential penalty given typical hotel loan sizes. Before recommending a refinance, we obtain an exact payout quote from your existing lender and weigh it against the rate and structure improvement on offer.
Common reasons Toronto hotel owners refinance
Most refinance requests fall into a handful of categories, each underwritten a little differently.
- Funding a franchisor-required PIP or brand-standard renovation
- Pulling equity to acquire a second property or diversify into another flag
- Moving off a maturing bridge or construction facility onto conventional term debt
- Repricing once trailing NOI has grown meaningfully since the last financing
- Restructuring around a partner buyout or ownership change
What it costs and how long it takes
Budget for a going-concern appraisal (materially more than a residential appraisal given the business-value component), legal fees for new security registration, a discharge fee from the existing lender, franchisor consent if the flag agreement requires lender changes to be approved, and any prepayment penalty if mid-term. A straightforward hotel refinance typically runs six to ten weeks once the appraisal and trailing financials are in hand; PIP-linked refinances take longer given franchisor coordination.
Frequently asked questions
- Can I refinance a hotel that is mid-way through a PIP?
- Yes. We structure these as a refinance combined with a PIP draw facility, with the loan sized to the post-renovation NOI and going-concern value rather than the current in-place numbers.
- What DSCR do I need to refinance a Toronto hotel conventionally?
- Generally 1.25x-1.40x against normalized, stabilized NOI, though the exact minimum varies by lender, flag, and asset quality. We run the numbers before ordering an appraisal so there are no surprises.
- Is a bridge loan a good option for a hotel refinance?
- It can be, when the property does not yet qualify for conventional terms - a recent acquisition, a renovation underway, or a temporary occupancy dip. Bridge financing is interest-only, closes quickly, and is priced higher, with a plan to move to conventional debt once performance stabilizes.
- Do unflagged hotels refinance differently than flagged ones?
- Yes. Unflagged and independent properties are more often financed by secondary institutional or private lenders at more conservative leverage than a comparable flagged asset, reflecting the absence of brand standards and franchise support.
- How is FF&E treated in a hotel refinance?
- Lenders expect an ongoing FF&E reserve, typically 3%-5% of gross revenue, and will confirm the reserve is funded and the furniture, fixtures, and equipment are in reasonable condition as part of underwriting the going-concern value.
- Can I refinance to buy out a partner?
- Yes, structured as a refinance sized to the appraised going-concern value with proceeds used for the buyout, subject to the same LTV and DSCR limits as any other refinance and lender approval of the resulting ownership structure.