Commercial Real Estate Finance

Desperate times call for desperate hoteliers?

There is no doubt that the hotel sector has been the hardest hit amongst the various real estate property types over the last 2 years.  While cap rates have risen steadily across the board in every asset class to the tune of 50-250 basis points, hotels have seen a meteoric rise between 400-800 basis points, mostly depending on the flag and location. I was perusing the daily periodicals the other day when I came upon one of the most ridiculous, fascinating and shocking real estate related stories I have ever read.

Hotel occupancy is largely a function of domestic travel, both business and leisure.  Yet international travel also plays a significant role, especially for the top destination cities like New York and Los Angeles.  There were many stories about European travelers coming to the United States on shopping excursions, simply to take advantage of the deflated dollar, and thus an advantageous exchange rate (which in some countries apparently is enough to offset the cost of flying across the Atlantic Ocean…but I digress). Well now, a new jet-setting trend among foreigners has U.S. hoteliers going out of their way just to cater to the demand (and with the way RevPAR has dwindled over the last few years, can you blame them for doing so?).

The concept has been dubbed birth tourism.  Essentially, parents with U.S. citizenship who live overseas are coming to the United States while pregnant, with the intention of giving birth to their children on U.S. soil, only to move back to another country shortly afterward.  Why?  Because according to the 14th amendment (which was enacted after the Civil War to grant citizenship to descendants of slaves), any child born by a U.S. citizen on American soil is granted U.S. citizenship. Between 2000-2006, the number of births of this ilk has risen 53%, as compared with a total birth rate increase of only 5% over the same period of time.

Hotel owners have noticed. The Marmara Manhattan, a Turkish-owned luxury hotel on New York’s City Upper East Side, markets birth tourism packages to expectant mothers abroad, luring more than a dozen pregnant guests and their families to the United States to give birth last year alone.

“What we offer is simply a one-bedroom suite accommodation for $7,750, plus taxes, for a month, with airport transfer, baby cradle and a gift set for the mother,” Marmara Hotel spokeswoman Alexandra Ballantine said. “Most women stay for two months,  and they make medical arrangements on their own. Guests arrange and pay for these by themselves,” she said of hospital costs that can approach $30,000.

The hotel estimates the total cost of the package at $45,000.

Call it immoral.  Call it a legal loophole to citizenship. I’ll choose to call it capitalism at its finest, and a financial boon to a sector of real estate that desperately needs it.