New Hotel Construction Financing

Experience Counts 

There are 20% more rooms under construction today than there was a year ago, 90% of them are in hotels with 200 rooms or less, and 65% of them are in the upscale or upper-midscale segments. 

Money is available for hotel/ development construction for borrowers who have experience in the business and a solid track record of performance.  Newcomers to the industry need to team-up with experienced owners or operators to improve their chances of securing financing. 

Favorable financing is available for nearly any kind of hotel/ development project—conversions or new construction, branded or unbranded, gateway city or secondary market—but if you don’t have solid experience and a strong track record in the business you still may be able to secure financing, but at a much higher rate.  

Lenders really like hotels again. As an asset class, hotels have outperformed every other major class in commercial real estate in the past 18 to 24 months, and it continues to outpace even what some had considered being lofty expectations.    

Lending is loosening for a number of reasons, the most important of which might be the performance of the hotel market.  

The industry is realizing some of the strongest margins experienced in a long time because operators are able to push (average daily rates), and occupancies are at an all-time high. The fundamentals are strong, so from a (hotel) owner’s standpoint it’s an awesome time to be in the market.
 
While money is plentiful, most lenders still want to deal with borrowers who have experience in the business or can partner with a seasoned hotel veteran.

Lenders want to work with people they know are going to be successful, and there are too many other opportunities to place (financing) to bother with a developer who may not be able to make a successful project.  A newcomer to the industry is advised to team up with someone who has developed or operated hotel assets previously. It’s the best way to cut your teeth in this business.

NEW DEVELOPMENT
Developers looking to build new hotels should be able to attract financing, even for projects in secondary and tertiary markets and for boutique and unbranded hotels.

We have sourced two major lending sources that are providing up to 100% non-recourse financing that can include the acquisition of the real estate. A 10% deposit of the loan amount is required and is refunded upon completion of the construction. 

Contact Us Today for Free Suitability Assessment of Your Project

To keep our underwriters happy we have to be selective for whom we will source loans. The key driver is the experience of the sponsor and or his team. We have spent a lot of time trying to get developers first hotel deals bought; the odds improve greatly with two or three under their belt.

A lay up for us is a strong, flagged project in a heavy business demand generator market.

While branding is important to most lenders, not all projects need to be chain-affiliated. At one time many lenders only considered projects with top-tier brands, but recently we are seeing a number of successful non-branded hotel loans.

There are some other secondary markets where the barriers are low, but this is a whole different kind of animal. More hotels are opening all the time, as are apartments, where many of the people who live in hotels today are moving.

Lenders are very prudent with the deals they’re doing and the sponsors they’re lending to. Many of the deals that we are getting done are typically big, landscape-changing projects, not deals done by local lenders. The market is very discriminating as to what will get built.  We submit to underwriting only about 20% of the new hotel development projects that we review. Approximately 80% of those packages will get financed. These deals take a lot of time, and some (developers) may not realize the scrutiny involved. Many people don’t understand that construction documents need to be about 70% done before a lender will issue a term sheet.

We would be glad to provide a free review your project today to determine suitability for our underwriters. Call or email me at 954.439.0612 - tstidham@targetsearchgroup.com

3 Parts to Customer Satisfaction

Create Competitive Advantage, Build Online Reputation, and Attract Profitable Guests

by Terry Stidham

Market Metrix recently issued a new white paper that shows how using a combination of feedback sources can improve your hotel business. By combining:

1. Direct guest feedback
2. Competitive benchmarking
3. Social media

...you get a complete view of your hotel guests, your performance and your market. The combination of three brings powerful balance.

 

The power and balance of three applies to customer feedback as well. You need direct guest feedback, market perspective and social monitoring to successfully manage every aspect of a hospitality business.

• Direct guest feedback, typically from guest surveys, helps you understand what's happening operationally, take action and build your property's reputation
• Independent market perspective lets you benchmark your performance against competitors and discover emerging market drivers and trends
• Social media monitoring keeps watch on your online reputation and allows you to respond quickly to social input

Each dimension of feedback has distinct value, but when you put them together they become even more powerful. By combining direct guest feedback, competitive benchmarking and social media, you get a complete view of your guests, your performance and your market.

This enhanced perspective gives you control and removes guesswork so you can focus on the things that will create competitive advantage, build online reputation, and attract profitable guests.

Tax Breaks, Approval and Financing for Conference Center Hotels

New Convention/Conference Hotels Are On An Upswing

David Eisen, managing editor of Luxury Travel Advisor recently wrote about the boost that convention and conference center hotels are getting by local governments. As the meetings and events business gradually comes back, developers are looking to build hotels to quench the demand.

Two separate projects are now underway, due in part to tax breaks granted that will help ease the burden of development.

A $197-million hotel project is planned for the Oregon Convention Center area, with financing that includes $70 million in tax dollars. Word is the hotel will be a Hyatt.

Metro council members said the hotel is needed to lure conventions, KOIN reported. The goal with those conventions, they said, is to bring more revenue and jobs into the city and to boost the area’s "tourism economy."

Financing plans for the hotel call for $60 million in construction bonds. On Monday Oregon state lawmakers approved $10 million dollars for the project—paid for by state lottery funds. A hotel tax then would be used to pay off the $60 million on construction bonds.

Meanwhile, another conference center hotel looks to be taking shape in Aurora, Colo., The Denver Post reports. The Aurora City Council this week approved $25 million in tax breaks for a new 245-room hotel, a conference center and parking structure across from the Anschutz Medical Campus. When opened, it will be flagged by Hyatt.

Corporex Colorado will build the hotel and 30,000-square-foot conference center, as well a stand-alone parking garage with upwards of 500 spaces.

Nothing New

The rise in building convention/conference hotels is on an upswing. In May, Boston's Convention & Exhibition Center in Southie’s Seaport District was tapped to receive a new 1,500-room hotel, "headquarters hotel" for the convention center. James Rooney of the Massachusetts Convention Center Authority told the Boston Herald that the hotel is also central to future plans involving the expansion of the center by up to 60 percent.

The Boston Globe reported that the city's hotels are already pushed to their capacity limit, especially the Seaport District where the convention center is located. Further, Great Boston's hotel occupancy levels in March rose to their highest marks since 2005 due to an increased number of gatherings at the Hynes Convention Center, according to the latest PKF Consulting survey.

Last month, reports were that Jackson, Miss., would be getting a boost to its convention business, with plans to build a $60-million hotel in Jackson's downtown area, linked to the city's convention center.

Outgoing Jackson Mayor Harvey Johnson Jr. also announced that the proposal for the property will ask for no more than $9 million in loans, to be financed jointly by the Jackson Redevelopment Authority and city taxpayers. A rejected proposal from December 2011 originally asked for $90 million for a similar development.

The Clarion Ledger reported that the Florida-based Callen Group approached Jackson with an unsolicited bid to build a 12-story, 305-room hotel across the street from the Jackson Convention Complex.

Though Mayor Johnson did not name a brand for the property, the Jackson Free Press reported that the developers are working with Hyatt, and the property will come complete with meeting areas, a full-service restaurant and parking. Additionally, the $9 million provided by the city for the hotel's construction can only be used to cover budget shortfalls for the first five years of operation. After that period, Hyatt has agreed to pay back any money it has borrowed, in full.

There are major lenders that are looking to fund quality projects. Contact me if you have a project that you would like to discuss @ tstidham@targetsearchgroup.com or 954.439.0612.

Purse Strings are Being Loosened for Multifamily and Commercial Construction/ Development

Construction Financing

by Terry Stidham

Financing for commercial development and construction has been greatly suppressed since 2008. After a long sleep, it’s starting to wake up from the dead. According to National Real Estate Investor, there’s been an increase in rezoning applications and new construction for apartments, hotels and senior housing, to name just a few property types.

Top Financing Complaints for Commercial Real Estate Developers:

• There are no commercial construction loans available
• Banks are only lending on the best projects
• The investment banks only want $20 MM and up projects
• Many of the bridge loan lenders offering this type of financing are offering financing terms that are simply unacceptable

Where are developers of new commercial construction going for their loans?

Many are turning to private money sources, including bridge loan lenders and hard money lenders. For the next few years, many developers will have no choice but to finance their projects, in part or whole, using private money and bridge financing. There is a range of pricing available for private money loans. There are loan programs out there with interest rates as high as 18%. These high rates are reserved for the highest risk projects with the lowest borrower equity.

The large banks are starting to lend again on commercial construction projects. The private money arena is expensive. Bridge loan lenders are eager to make commercial construction loans in 2013.

We have sourced a major bank that is making 100% loans on new construction projects with a 10% refundable deposit upon project completion. Contact me for more details if you have a ready to go project that needs funding.

 

Terry Stidham  tstidham@targetsearchgroup.com  954.439.0612

 

Hotel Financing

Financing is Being Made if You Know Where to Go

by Terry Stidham

In the midst of the global predicament comes another hurdle for hoteliers to jump over; hotel construction financing has become increasingly difficult to achieve. Private funding for construction or redevelopment has been quite stringent. Hospitality financing groups have been actively seeking projects of all shapes and sizes, but are more inclined to look for low-leverage deals.

 

The equity necessary from the principal, as well as the strength and experience of the investor group, can be a determining factor in the terms and conditions of the loan. Financial stability, capital, and easy access to equity are critical characteristics. The experience necessary to push ahead on a loan from a traditional lender can far exceed the number of notches on most developers’ belts, and although financing rates are extremely aggressive, money is only awarded to those who can prove time and again that they know how to develop and own a hotel from soup to nuts. Surprisingly, there has been a major movement towards funding boutique hotels, as the cash-flows prove their worthiness.

 

It is also important to understand some of the current products in the market. While traditional lenders are offering leverage hovering around 65% for boutique hotels and 70% for flagged hotels.

 

EB-5 Financing has begun to play an integral role for the development of many hotels. So much, in fact, that Marriott is actually urging developers to utilize the program to build hotels and add to their portfolio. Although EB-5 can be very difficult, and intermediaries are quite picky about which projects are chosen for the program, the benefits can be very fruitful for qualified developers.

 

Lastly, it is of the utmost importance that a borrower choose the right lender not solely based upon the numbers because let’s face it, they don’t differ all that much, but also on the comfort level that the borrower has with the lender, as they will be significantly intertwined throughout the building process.

If you have a hotel construction project that needs financing then contact me to discuss. tstidham@targetsearchgroup.com 954.439.016