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Hoteliers: Where Is All the Equity Funding?

by Paul Barham, Featured Contributor

The Great Recession stopped any significant volume of new development, in most if not all commercial real estate sectors, with hotels being no exception.

Bundles of Paper CurrencyNow that the fundamentals are back, with occupancies and rates in many markets reaching record levels, so is hotel development.

There is no question that generally speaking, across this country the economy is recovering, corporate and weekend travelers are traveling, and groups are meeting.

Development

Limited service development, based on friends, family and local lender’s availability of funds to invest and lend has resulted in another round of infill development extending the reach of many limited service brands.

Select service development has started to follow suit but with more selective deployment, as the top tier brands advance their expansion plans, but with a more measure approach.

Full service development continues to be focused, and in markets that have particular attributes, very strong fundamentals and very compelling stories.

Controlled development is warranted.

This presents opportunities for skilled lenders, investors, developers and operators.

Funding

As is often the case, both ends of the spectrum are taken care of. The limited service, often family operated hotels are funded through family, friends and local lenders. The larger, full service hotels are funded through national and regional lenders, institutional and public entities, in partnership with major developers and the brands themselves.

The select service, 150 to 225 room, with food and beverage and meeting space, franchised and professionally managed, $20m to $50m hotel opportunity – in markets with strong fundamentals, needed hotel rooms, needed meeting space and a top tier brand – is in a void….but we hear about all this Equity on the sideline.

Sideline

Where is this sideline?

How do we identify and educate potential investors of these opportunities?

Historically this investment tier has been fertile ground for family offices. Syndications of accredited investors have invested in this space. EB5 investor visa funds are also seeing their way into this space. We now have crowdfunding for the smaller investor.

But there are millions of dollars still apparently on the sidelines, not part of a syndicate, not an EB5 candidate, and not small investors.

Opportunity

We see a number of conservatively underwritten, well located, top branded select (and sometime full) service hotel development projects, with good sponsorship that need equity sources to partner with. These are opportunities with strong double digit returns to equity investors, moderate leverage, and a meaningful return to the developer for their risk.

In these economic times, with strong fundamentals, a very positive outlook in terms of the hospitality business for the next few years, such investments are attractive.

So, Sideliners, identify yourselves. Tell us how to find you (my contact details below). You will be surprised by the selection of solid investment opportunities that exist today.


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Paul Barham
Paul Barhamhttp://harrellhospitality.com/home.html
Paul has more than 30 years of experience in the hospitality industry, in properties of all types, in urban, suburban and resort areas, in development, operating, consulting and asset management, on behalf of institutional, private and public owners. After more than 20 years of experience in the turn around, renovation and rebranding of distressed hotels, Paul’s company’s attention has recently turned to the development of new full and select service hotels in strategic markets, together with complimentary skilled partners. He has always believed in a hands-on, detailed, transparent approach in business, where all parties are aligned through incentives and focused on the attainment of clearly defined goals. His company, Harrell Hospitality Group, is celebrating 25 years in business in 2014, and has earned a reputation as a knowledgeable, focused and family oriented company, whose experience with the top tier brands in the hospitality industry has assisted it in delivering superior results to its stakeholders.

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