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:
A lot of exciting things are happening in the hospitality industry as 2014 opens. Based upon more than $68 billion of hotel transactions, JMBM's Global Hospitality Group® has made its "top 10" pick of the events, issues, trends, and developments that will have the biggest impact on the hotel industry.
I have been attending the NATHIC conference this week in Chicago. In its seventh year, the conference was relocated to Chicago from Washington, DC, and has replaced what was previously held here as the Midwest Lodging Investment Summit. The conference has a few new wrinkles over the other industry events that provided an interesting experience. One agenda item in particular was the "Shark Tank" competition between Michigan State, NYU and DePaul University. Each of the teams was charged with creating a new brand concept and selling the idea to an esteemed panel of industry veterans. It was truly refreshing to see young, enthusiastic minds came up with regarding the age- old challenge of doing something different yet trying to satisfy a perceived market need, all while making it economically feasible. I also commend the "Sharks" for taking the high road when providing feedback on the presentations. The teams all did a respectable job defining and presenting their concepts, but the presentations further confirmed my theory that the various hotel programs around the country need to incorporate more hotel investment material into their programs. Michigan State won the competition, but all the teams put forth a great effort.
As the U.S. hotel industry approaches pre-recession levels of operating performance, many of our clients are asking, “Is now a good time to invest in the lodging sector?” According to the respondents of the 2013 edition of PKF Consulting USA, LLC’s (PKFC) Hospitality Investment Survey (HIS), it is a good time to be a hotel owner and investor. While opinions vary among industry professionals regarding the root cause of this positive sentiment, we at PKFC believe that several factors are attributable to the overall positive outlook for hotel real estate.
While revenue per available room exceeded what I predicted in 2012, it was primarily because some of what lies ahead is slower to arrive than I had thought. The bubble is growing, and unless Washington—and especially President Obama—act to reduce entitlements and overall spending and accomplishes true tax reform, the result of the bursting bubble someday will be very ugly. Published at by HotelNewsNow.
On February 19, 2013, the US attorney's office announced that Jonathan Propp, 48, of McLean, VA, pleaded guilty today to conspiring with others to steal more than $20 million from Host Hotels and Resorts L.P. (Host), one of the nation's largest hotel owners, by executing a series of illegal sales of hotels."
If you didn't attend the ALIS hotel conference in Los Angeles this year, you really missed something! Hotel investment conference attendance is a barometer for the health of the hotel industry. Companies send lots of delegates to these conferences when they are doing well, expect increased business, and are optimistic about the future. By that standard, things are really looking up for the hotel industry in 2013 and beyond!