How EB-5 Regional Centers and Sponsors Can Evaluate Broker-Dealer, Investment Company and Investment Adviser Registration Requirements under U.S. Securities Laws
This is the second installment in a three-part series examining the impact of the Chinese market on Canada's lodging industry, with special emphasis on the city of Vancouver (Read first installment here). In this installment, we examine the unique context that informs the decisions of the Chinese investor, the motivations these investors have for investing in foreign markets, and why the Vancouver hotel market is poised to see an influx of Chinese capital.
The amount spent on capital expenditures ("cap ex") for the U.S. lodging industry is forecast to exceed the prior record level spent in 2013, for a new record level of $6.0 billion, an increase of seven percent. There were decreases of 40 percent in 2009 and an additional 18 percent decline in 2010 in response to decreasing occupancy, ADR, RevPAR, and profits in 2009, but expenditures have increased every year since 2010. The expenditures in 2014 reflect deferred items from 2009 to 2012 and meeting new brand standards, ranging from new or enhanced in-room equipment to redesigned lobbies. Performance has improved: occupancy will return to close to 2007 levels (exceeding 63 percent), and ADR will increase the most since 2007 (approximately 6.5 percent). Although total 2013 U.S. capital expenditures were a record, the nominal amount per available room was slightly less (approximately three percent) than in 2008. The 2014 amount will be a record for both real and nominal values.Capital expenditures include improved guest amenities and services such as:
This is the first installment in a three-part series examining the impact of the Chinese market on Canada's lodging industry, with special emphasis on the city of Vancouver. In this installment, we examine Vancouver's connection with Chinese immigration and the role that this history plays in the current surge of investment and tourism into Vancouver from the People's Republic of China. Chinese investor attitudes and tourism to Vancouver will be discussed in the second and final installments of the series.
Executive Summary: Contrary to the conventional wisdom, the study described in this report calls into question the principle that the best way for a brand to ensure that an affiliated hotel conforms to standards is to own that property. Instead, a comparison of opportunistic behavior at 49 brand-owned hotels with that of 247 hotels owned by a third party found that the brand-owned hotels report higher levels of opportunism on the part of hotel managers directed at brand headquarters. The study also revealed conditions that tend to limit opportunism, which is defined as using guile to pursue self-interest. Opportunism is limited when it is easy to monitor hotel performance, and when the brand is able to use opportunism as a form of retaliation. On the other hand, contrary to expectations, the study found no effects of ownership when combined with either emphasis on relational norms or transaction-specific assets to limit hotel opportunism. Ironically, the data indicate that having a third-party owner involved in the arrangement tends to stifle opportunism in the individual property.
Hotel franchise companies ("the brands/chains") charge their franchisees a series of fees that cover a variety of services provided by the franchisor. In our firm's annual Trends® in the Hotel Industry survey of operating statements, PKF Hospitality Research, (PKF-HR is a CBRE company) captures four of these fees discretely:
This article is the first in a series of articles on how EB-5 regional centers and sponsors can evaluate broker-dealer, investment company and investment adviser registration requirements under U.S. securities laws.
This article evaluates the economic life of economy hotels given normal wear-and-tear. The life of these hotels is plotted on a frequency distribution, and an average economic life is found. Economic life is an important component in determining development feasibility of hotels. Economic life is defined in the Appraisal Institute's Dictionary of Real Estate Appraisal as "the period over which improvements to real property contribute to property value." A deteriorating property can lead to a depreciation of the value of the asset, and owners of an aging property may determine that the expenses associated with improving the property cannot be justified. When improvements cease to contribute to value, the property's economic life comes to an end.
Although the EB-5 immigrant visa program has been around since 1990, the current trend of using this as a source of financing for hotel development began only three years ago. We worked on one of the first hotel EB-5 financings for the W Hotel and Residences in Hollywood, and have since worked on more than 60 EB-5 projects all over the country. Now, use of the EB-5 financing program has gone mainstream. Headline grabbers include the $400 million financing of the SLS Hotel in Las Vegas, the $100 million Ritz Carlton & JW Marriott in downtown Los Angeles and now the $1 billion Silverstein project to be built in New York City with a Four Seasons Hotel.
Demand for EB-5 financing among U.S. real estate developers is at record high levels, and demand for high quality EB-5 investments in China remains strong.
Properties sold together as a portfolio may represent a greater, equal, or lesser value than the sum of each property's individual values, depending on market conditions and characteristics of active buyers. The author collected hotel sales data for the 2012-2014 period and compared the sale prices of portfolio hotel transactions with individual hotel transactions of similar quality, as measured by RevPAR. During this period, the author concludes that portfolio transactions exhibit a premium sale price when compared to individual hotel transactions.
The development of hotel real estate indices raises the possibility that investors could benchmark hotel price appreciation using hotel indices. However, individual hotel property transactions are poorly tracked by the aggregate hotel index that is available. Moreover, for individual assets, the level of tracking error is larger for hotels than non- hotel properties. Forming portfolios reduces tracking error quite dramatically, but the level of tracking error for hotel portfolios still appears to be higher than for other commercial properties. These results demonstrate that indexing individual properties is difficult, since any individual hotel investment is unlikely to perform like an aggregate index. However, it may be reasonable to compare a portfolio aggregate hotel indices. In that instance, this would require a fairly large portfolio of hotels where the properties are of approximately the same value...
Steve Rushmore's presentation at the 36th Annual NYU International Hospitality Industry Investment Conference, New York June 1-3, 2014.
A "Major Project" is often defined as a project with a construction value in excess of $100 million. That threshold generally describes a project with multiple phases or components, a large and diverse design team including many different types of consultants, often more than one contractor, generally a professional project management or construction management consultant, and other elements that differentiate it from a smaller and more conventional project. Major Projects can be as large as many billions of dollars in construction value.
U.S. hotel demand is increasing out of China, Chinese investors continue to purchase stakes in U.S. hotel properties, and major Chinese real estate companies have begun to develop mixed-use projects in the U.S. that include hotels—all signals of rising interest from China in the U.S. lodging industry. Since I began writing about Chinese hotel investment and tourism trends in the U.S., activity from China has not only grown but also diversified. Over the last two years, more and more Chinese investors have been searching for hotels to purchase in gateway cities like Los Angeles, San Francisco, and Seattle in the west, and New York in the east.
At the recent 26th Annual Hunter Hotel Conference in Atlanta, I served alongside other hotel buyers, lenders, appraisers, and advisors on a panel discussion of "Hotel Values in a Rising Market." While we shared insights from our various perspectives on the U.S. hotel industry as of early 2014, it became very apparent that there is a surge of urgency among hoteliers, and with good reason. The conference's theme—"The Time is Now"— couldn't have proven more apt, and other panel discus sions, featured speakers, and informal conversations with fellow delegates made the strong impression that now is indeed the time to move ahead with hotel ambitions. What makes the present so opportune for hoteliers?
In this report, we show how the popular and well known economic value added (EVA) technique can be used as a barometer of investment performance for hotels and other property types. Economic value added represents the return on a project in excess of its financing cost. The EVA metric complements traditional measures which analyze the spread between the cap rate and either the ten-year U.S. Treasury bond rate (riskless debt) or the BAA bond yield (risky debt).
Hotel capitalization rates hold steady in current market environment, yet increasing need for capital improvements as assets age can affect values and rates of return. This article evaluates impact of cap ex on hotel cap rates and exit strategies.
HVS Consulting & Valuation annually researches development costs of actual hotel construction budgets, industry reports, and uniform franchise offering circulars. This 2013/14 survey reports updated per-room development costs through the end of 2013.
Even with great availability of low cost senior debt today, we still see a lot of projects suffering from a gap in their capital stack. Most of these deals are new construction projects, but there are plenty of acquisitions that have the same issue. Many of the owners are seeking some type of "passive" equity to get their projects off the ground. They are hoping to identify groups that will take a non-controlling interest in a project and settle for lighter equity returns. They often prefer to see these investors come in through the riskiest phases of the project and want to exit them from the deal at or prior to stabilization. While there are certain groups out there that will invest in deals on this basis, they are few and far between. Owners and developers would be better off seeking a structure that appeals to a wider range of the capital sources.The options available to owners to fill the gap will vary based on a project's, size, quality level, geographic market, product type and sponsor experience. It is generally the case that good quality assets in strong markets with experienced sponsors will have a much higher probability of attracting capital. Potential sources of gap capital include: