Why IHG, Avana partnered on construction finance program

NATIONAL REPORT — Sanat Patel, chief lending officer and co-founder at Avana Capital, has seen a lot of ebbs and flows in the lending market over the last 25 years. No matter the credit market or lending environment, he said new construction financing can be difficult to accomplish.

“Construction financing, overall, is a very challenging type of financing to do whether you’re a bank or even as private credit,” he said.

Sanat Patel

So, when Glendale, Arizona-based Avana Capital heard about an opportunity to partner with IHG Hotels & Resorts on new construction loans for franchisees, Patel said the company was intrigued.

“It’s one where it’s a win for the developer, it’s a win for the brand and it’s a win for the lender,” he said.

Avana and IHG announced the loan program in January as a “borrower-friendly alternative to standard financing” for new construction in the U.S. for four of its brands: Even Hotels, avid hotels, Atwell Suites and Holiday Inn. The co-lending program aims to reduce development timelines and supports IHG’s U.S. pipeline, which stands at nearly 950 hotels and represents nearly half of the company’s overall global pipeline. The program starts with a $250 million commitment, $50million from IHG and $200 million from Avana.

Why IHG created the program

Lori Tirado-Celniker, director of capital investments and transactions, Americas at IHG, said the program was born out of the need IHG saw in the market.

Lori Tirado-Celniker,

“We were really trying to find a lender that we could partner with who understood our goals and was committed to supporting hotel development. Avana stood out from the start,” she said. “It mostly came from owners telling us they’re having some issues with construction financing. We listened to them and we saw it as an opportunity to help them.”

The goal is to set up owners by pairing the right projects with the right financing solutions. Tirado-Celniker, who had a background in capital markets and lending, said this type of program was a priority for her since she joined IHG in August 2023.

“While these brands bring exciting growth opportunities, their relative unfamiliarity can create hurdles in securing funding. Our goal is to help owners overcome these challenges and get their hotels built, open and operating successfully,” she said. “It fills a critical market gap at a time when demand for financing solutions is growing.”

Reducing development timelines

The program also aims to reduce development timelines, a complex process that Avana and IHG both want to streamline.

Construction financing is hard to do. It involves a lot of unknown variables. We can try to do as much as possible during the development phase, and when we start funding, we can control as many of those uncontrollables as possible.

Sanat Patel

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“The idea is to take a prototypical design that [the developer] chooses so it reduces that design approval timeline,” Patel said. “It then takes the municipality saying because they’ve seen these [types of hotel projects] done before, it reduces that as well.”

Then the financing side gets involved. 

“When they have that done, they identify their cost structure. That’s where we step in with IHG saying, based on this cost structure, your overall financial picture and the market, this is what we can lend to you,” Patel said.

This program can lend up to 75% of the project’s total cost, whereas banks typically cap out at 60% to 65%.

“This gives (the lender) a little more leverage,” Patel said. “This helps the developer have a little less equity than [what is often] required.”

While it’s possible for lenders to seek an extra layer on the capital stack to make that 75% LTV even higher, Patel said the preference is for the borrower to have some “skin in the game.”

“We’re taking three-quarters of the risk,” he said. “I want you as a developer to take a quarter of the risk… If you’re doing it where you’re not taking that much risk, there’s not as much of an incentive for you to try to make it work.

“Construction financing is hard to do. It involves a lot of unknown variables. We can try to do as much as possible during the development phase, and when we start funding, we can control as many of those uncontrollables as possible. Things come up: weather, labor shortages or whatever they may be, these things happen because of macro conditions,” Patel said.

The goal is to make that timeline from signing an agreement to starting construction as fast as possible, Patel said.

“The only uncontrollable thing is if the city approves the zoning,” he said. “If a franchisee takes a prototypical build and goes through the process, that timeline could be 90 days before from when they say they want to sign the agreement to when they’re ready. If the city takes longer than that, it extends it.

“I want to make sure when they go to the city for approval, they have a set of drawings that are going to get approved so that the general contractor can bid it out accurately.”