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Archive for the ‘Hospitality’ Category

The Burj Khalifa, known for much of its (seemingly decade long) construction period as the Burj Dubai, opened January 4th 2010 to much fanfare and fireworks, which were televised around the globe. It is the tallest tower the world has ever seen. It was supposed to serve as a metaphor for the grandiose and burgeoning man-made (and oil-financed) structures of the city of Dubai itself….a “Mecca” not just for the Arab world, but rather to for the industrialized world as well. It was supposed to attract tourists, all by itself, to a region that was lacking them desperately. But the name change it recently underwent at its grand opening turned out to be a metaphor for something else… Read the rest of this entry »

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It wasn’t all that long ago that most hotels operated solely with the intent of accommodating leisure travelers. But for the last several decades, major hotel chains have been trying to lure business travelers by offering “business centers” and “meeting rooms” as part of their hotel. Yet, according to data from the International Association of Conference Centers (IACC), these attempts are continually compromised by the leisure minded nature of their business platform.  Conference centers have always been considered an amenity, not a core competency for hotels.  Sentry Centers, a subsidiary of Sentry Hospitality, is trying to fill this void. Sentry Centers leases dedicated corporate conference centers in urban cores.  Their flagship property, Sentry Centers Midtown East, has been a huge success since opening just six weeks ago.

We are contstantly keeping our eye out for creative real estate plays, and so we decided to dig deeper into Sentry Centers, and figure out why such a business model has led Sentry Centers to become a leading national provider of non-residential conference and executive center services. Let’s look at some of the basics:

1.  Its not a hotel - The operations of Sentry Centers are only focused on business meetings, so there are no “hotel-like” hassles, distractions or compromises. If however, overnight accommodations are necessary, Sentry Centers are strategically located and partnered with world class hotels nearby. Read the rest of this entry »

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Mr. Sillerman’s Luxury Resort in Anguilla, which he has lost $180 million on to date

“If your lifeguard duties were as good as your swimming, a lot of people would be drowning”:

-Simon Cowell

Simon Cowell said that on American Idol about a contestant’s stage performance. The quote should be used to describe the real estate investments of Robert Sillerman, who owns American Idol.

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Bloomberg published an interesting article yesterday commenting on the peculiarity of the hospitality industry in Brazil’s capital city, Rio de Janeiro.  As occupancy and average daily rates have plummeted across the globe since we entered this period of economic recession, demand for hotel rooms in Rio has been on the rise.  Occupancy has risen 5.6% and room rates have gone up 12% in the first half of 2009.  Here in the States, in contrast, occupancy has sunk 11% and rates have fallen 8.7% over the same period.

What is the reason for Rio bucking the trend in the bleeding hospitality industry?  Read the rest of this entry »

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Jan A. deRoos, Ph.D.,
HVS International Professor of Hotel Finance and Real Estate, Cornell University Hotel School

Dr. deRoos, on the faculty of the Cornell University Hotel School since 1988, has devoted his career to hospitality real estate; with a focus on the valuation, financing, development, and operation of lodging, timeshare, and restaurant assets. He holds B.S., M.S., and Ph.D. degrees from Cornell University, all with majors in Hotel Administration.

Dr. deRoos is director of the Hotel School’s Center for Real Estate Finance. A frequent speaker on these topics, Dr. deRoos regularly contributes to lodging industry conferences in the Americas, Europe, and Asia. Prof. deRoos’ current research is focused on three themes; the design and implementation of hotel management contracts and hotel leases, investment returns to lodging properties and supply/demand dynamics of lodging markets.

Prior to his teaching career at Cornell, Prof. deRoos worked extensively in the hospitality industry. Industry experience includes work for the Sheraton Corporation in New York City, an engineering professional. He worked for Remington Hotel Corporation as Director of Engineering, responsible for the engineering operations and renovation planning of the firm’s owned and managed hotel portfolio, and as Senior Project Manager, responsible for the construction of new properties and renovation of existing hotels. During this period, Prof. deRoos was responsible for the construction of Marriott Hotels, Hilton Hotels, and Hampton Inns.

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The Week of July 4-10

-Apparently CBRE does want you to think about the environment before printing those emails.  They have submitted 225 buildings for LEED certification.

- Deutsche Bank is selling 825 Eight Avenue after all.

- A bankrupt lender has accepted funding that will pull them from the icy grip of Chapter 11.

- A mixed use property in London has fetched a 122 million Euro price tag.  What’s the conversion rate again? Read the rest of this entry »

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Jay H. Shah currently serves as Hersha Hospitality Trust’s (NYSE: HT) Chief Executive Officer and as a member of its Board of Trustees.  Mr. Shah is involved in all areas of the business with a particular emphasis on investor relations, capital transactions and acquisitions. Previously, Mr. Shah served the Company as President and Chief Operating Officer and prior to that he served as the Managing Director of the Hersha Group, a private affiliate of Hersha Hospitality Trust that provides hotel management, development and construction management services to hotel owners.

Prior to joining the Hersha organization, Mr. Shah was principal in the law firm of Shah & Byler, LLP, a real estate and construction specialty practice, which he founded.
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Barry Sternlicht, former CEO of Starwood Hotels and Resorts & Founder of Starwood Capital Group, has been making some “interesting” business decisions lately. Just four years after Starwood’s acquisition of Paris’ acclaimed Hotel de Crillon, as well as the French crystal company Baccarat, Starwood has put the Hotel de Crillon back on the market. (If you’ve got the $420 million they’re asking, then it’s all yours!) Upon purchasing these two high-class assets, Sternlicht had a vision to create three new hotel brands: Baccarat Hotels and Resorts (five-stars), “1” Hotels & Residences (“green” luxury), and Crillon (six-stars). All three were to be held by the Starwood Capital Group Global. (Just in case you’re not familiar with Starwood Capital Group, they are a real estate private equity firm that Sternlicht started after leaving Starwood Hotels and Resorts. The two companies are completely unrelated.) Today, there are only a couple of Baccarat Hotels in existence and construction is underway on the “1” Hotels. The Crillon hotel chain, which was the most anticipated of the three, will clearly never come into fruition. Why is Sternlicht selling his baby you ask? I couldn’t tell you…but what I can tell you is this:

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The Week of May 22-29

- The 177-Store anchor Blue Denim chain filed for bankruptcy.

- HUD took action against 120 FHA -approved lenders earlier this week.

- Grubb & Ellis reported Wider Quarterly, and Yearly Losses.

- A new report came out detailing that Manhattan Sales have reached a 25 year low.

- FHA announced it is allowing first time home buyers to sue the much ballyhooed tax credit towards their down payment.

- Fitch Ratings has downgraded First Industrial.

- Giant real estate player Tischman Speyer has announced they will sell some California assets to pay down debt.

- News broke on Tuesday that two more banks have failed.

- Sequoia Equities announced the acquisition of a $75M multifamily luxury apartment complex in Orange County, CA.

- S&K Menswear will be closing all remaining stores in bankruptcy

- A Westin hotel developer accused a local councilman of extortion.

- Sunstone sold a 274-room Marriott.

- Paramount Realty bought a prime retail center.

- Freddie Mac could help out the commercial backed securities market with
K-Certificates.

- LandAmerica sold 6 of its subsidiaries last weekend.

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So you own Boardwalk and Park Place (or the best respective site for a hotel in your particular locale). And thanks to the credit crisis, interest rates are at rock bottom lows, the cost of materials used in construction have shrunk, architects can turn around designs more rapidly with fewer projects on their plate, and construction companies are bidding each other down for the same reason. All is good in the world of a hotel developer, right?

Um, not so fast. First there is an issue of scale. Regardless of product type, larger transactions are harder to finance these days. Many of the large market players that financed these transactions in the past are out of the game entirely. Most others are choking on their bad debts, and even the better capitalized sources continue to sit on the sidelines playing the waiting game…that is waiting for the economy to hit bottom. There is a universal aversion, both amongst most developers, and certainly among most sources of capital, of being the first one to gamble in terms of purchasing or developing in this market. Why risk buying now if prices will continue to slide? Why risk construction starts when bidding out the project in 6 months might yield cheaper options? And so we wait.

Yet, at least on the hotel development side, many major market players are finding that their smaller projects are actually getting financed, even in today’s challenging environment. Projects that require between $10-20M are getting the green light. For example, Concord Hospitality Enterprises recently secured a $13.4 million loan to build a 124-room Courtyard by Marriott in Pittsburgh, a great flag in not the greatest market. So it is possible….

Unless of course you don;t have sufficient equity. Most lenders are looking at LTV’s between 55-65% for ground up hotel construction, and that’s assuming you have a stellar reputation, track record, project, strong financial statements, and of course high barriers to entry. If the sponsor needs to raise equity to meet these stringent requirements, they can more or less forget about their project for the time being, regardless of project size.

Sightings of private equity for ground up hotel development in the last few months (or foreseeable future for that matter) has been about as rare as a Loch Ness Monster sighting. Private equity firms simply aren’t buying into the notion of ground up development when, despite a drop off in construction costs, you can still buy existing product for less than replacement cost. Returns would have to be approaching a ridiculous 50% for firms to start considering a change in this philosophy.

Who would have guessed buying Mediterranean and Baltic was your best bet after all.

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