Commercial Real Estate Finance

Archive for the ‘Hospitality’ Category

While having brunch with my family in our hometown of Sioux Falls, South Dakota, I had the surprising good fortune to enjoy a slice of the best raisin bread I’ve ever had. So good in fact that I asked the server for information about the bakery that supplied it–only to discover it wasn’t made by a bakery but a local guy working in his mother’s garage-turned-commissary.

After several phone calls and a long lunch, I realized that this baker represented more than just an advisory engagement opportunity for me.  After determining his options for a sustainable business platform, I quickly realized that this young man (and his uncanny baking skills) represented something more profound: the endangered demand for quality products in lieu of convenience.

David Napolitano is making incredible bread and supplying a small local specialty grocer along with two or three eateries in town, but the demand for his product is sure to outpace his ability to produce it. In order for David to continue making bread at a profit, he is forced to either

a.) Charge a price beyond what the market will bear.

b.) Outsource the production to a larger-scale manufacturing facility—in which case product quality will suffer

or c.) Collaborate with a complimentary concept (such as a restaurant, super-luxury hotel or bulk olive oil retailer) with both a scaleable platform and significant financial resources.

Gone are the days where local artisans and craftsman line the streets with their shops: specialty bakeries, coffee roasters, etc. Granted, more and more are popping up in major US cities. But outside those densely packed urban areas, suburbanites are driving to lifestlye centers and super-grocery chains. For most, there is no alternative to mass-produced, lower-quality products from corporate retailers. Read the rest of this entry »

Today’s Top 10 comes from Integra Realty Resources’ Viewpoint 2013, which includes data from Smith Travel Research. Though hospitality real estate was among the worst-hit CRE sectors during and after the recession, there are signs of substantial recovery in select markets, such as those below. Here are the Top 10 Hospitality Real Estate Markets of 2012:

10. Dallas, Texas

9. Orange County, California

8. San Diego, California

7. Boston, Massachusetts

6. Los Angeles, California

5. Miami, Florida

4. Chicago, Illinois Read the rest of this entry »

When my daughter Catherine was just over a year old, she placed the frame of a United States foam puzzle over a Dr. Seuss book and exclaimed, “Look Daddy! I made a city!”

I’m not saying the evolution of America’s middle market is going to be that fast or that simple, but the growth in South Dakota (were I live) and of the Midwest in general has been both exponential and inevitable.

With both coasts of the country growing on top of themselves, it’s only a matter of time before increasingly mobile generations drive an economic overflow into the middle of the country (as earlier generations did when they moved to America from the Old Country). After all, you can’t have sprawl into the ocean.

Another driving force behind the Midwest’s growth is what I like to call “The Delaware Factor”: the creation of a tax-friendly environment for corporations. The opportunity to thrive in such a place will lead corporations, even Fortune 500 companies, to relocate their corporate headquarters and attract other businesses for the same reason. This creates more jobs, more rooftops, more retail, and finally, more advanced medical and educational development (take note, Obama).

In the last three years, the population of Sioux Falls alone has gone from 75,000 to almost 180,000. From 2010 to 2011, the departures and arrivals from the airport (which you pull into like a lifestyle center) doubled, prompting the construction of two additional terminals and an initiative to establish Sioux Falls as an international hub. In the first quarter of 2012, the number of flights has already doubled the total amount of flights in 2011. Read the rest of this entry »

Mark Morris

Partner

Fox Rothschild, LLP

Mark is an experienced real estate practitioner with a particular focus on representing clients in the hospitality industry. He routinely handles a broad range of real estate matters, including acquisitions, development, joint ventures, leasing and finance.

As co-chair of the firm’s Hospitality Practice, Mark serves as lead attorney in more than 30 transactions annually involving the sale, acquisition, development and management of full-service and limited-service hotels throughout the United States. He is skilled in the negotiation of franchise and management agreements and has worked closely with major franchise companies, such as Marriott, Choice and Hilton, in transitioning franchisees and resolving disputes.

A familiar face within the hospitality community, Mark has written and spoken on matters of interest to executives in the industry, as well as to shopping center owners and tenants. He has taught at the Institute for Paralegal Training in Philadelphia and lectured on commercial leasing topics to developers and retailers.

Mark’s leadership roles within the firm include serving as a member of the firm’s Executive Committee, managing partner of the firm’s Philadelphia office and former chair of the firm’s Real Estate Department.

In law school at Boston University, Mark received the Paul J. Liacos, Edward P. Hennessey, and G. Joseph Tauro scholarly designations.

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(This is Part Two of our interview. Click here for Part One!)

Q: Philadelphia’s office market has seen some challenges in recent years. What can be done to revive this asset type? Is the answer simply to convert office to something else (multifamily, etc.)?

It’s still a zero-sum game. There hasn’t been significant downtown construction in years. Even with limited space, there haven’t been enough projects to increase the value of that space. Right now, Philadelphia’s businesses are just trading places with each other, not absorbing more space. Many service-oriented businesses have downsized because of new technology and better efficiency, which drives down office demand. There aren’t many office-based businesses moving into the area, except to the Navy Yard, and to some extent demand driven by the universities and medical centers. Read the rest of this entry »

Mensch 

Noun, informal. A decent, upright, mature and responsible person. 

Schlemiel 

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser. 

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Mensch of the Week:

The City of Denver

After single-family, office real estate was one of the asset classes most hurt by the financial crisis of 2008-09. The factors that created the precipitous drop in office demand were something of a perfect storm: widespread corporate cutbacks (and outright closures) decreased the number of tenants, while changing workplace trends and more efficient technology limited the office footprints of many other companies.

Recent news of increased activity and values in the office sector is one clear indication of the overall economic recovery. Once again, companies have the confidence to expand and lease.

But the office recovery is more noticeable in certain markets, such as our Mensch of the Week: Denver, Colorado. According to research from CBRE (NYSE: CBG), the Mile High City enjoyed the greatest decline in vacancies among the top office markets surveyed in the first quarter.

Denver ended 2012 with a 15.1% vacancy rate but ended the first quarter of 2013 with a rate of 14.5%. While this pales in comparison to, say, downtown San Francisco, it shows strong improvement for the local market and looks especially positive when compared to the dismal national average (which has been hovering around 17% for quite some time). Read the rest of this entry »

Mark Morris

Partner

Fox Rothschild, LLP

Mark is an experienced real estate practitioner with a particular focus on representing clients in the hospitality industry. He routinely handles a broad range of real estate matters, including acquisitions, development, joint ventures, leasing and finance.

As co-chair of the firm’s Hospitality Practice, Mark serves as lead attorney in more than 30 transactions annually involving the sale, acquisition, development and management of full-service and limited-service hotels throughout the United States. He is skilled in the negotiation of franchise and management agreements and has worked closely with major franchise companies, such as Marriott, Choice and Hilton, in transitioning franchisees and resolving disputes.

A familiar face within the hospitality community, Mark has written and spoken on matters of interest to executives in the industry, as well as to shopping center owners and tenants. He has taught at the Institute for Paralegal Training in Philadelphia and lectured on commercial leasing topics to developers and retailers.

Mark’s leadership roles within the firm include serving as a member of the firm’s Executive Committee, managing partner of the firm’s Philadelphia office and former chair of the firm’s Real Estate Department.

In law school at Boston University, Mark received the Paul J. Liacos, Edward P. Hennessey, and G. Joseph Tauro scholarly designations.

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Q: How has your background in law informed your perspective on real estate?

When you are a real estate lawyer and have been at it for a long time, you come to understand business issues involved in transactions. It is essential to understand your client’s interests, the overall business environment, and the various issues that sometimes arise. In order to be a good advocate for a real estate professional, you need to understand the market and its key pressure points. That is essential to being an effective advocate for your clients. Read the rest of this entry »

Secondary markets host plenty of economic and real estate activity, but much of this progress fails to gain national attention. I’m sometimes puzzled by the bandwagon mentality that brings real estate investment to a select few gateway markets. New York, San Francisco, and Washington, D.C. certainly offer great stability and high demand, but what about yield? What about new opportunities?

Some are beginning to look more closely at secondary markets in their search for yield. Some are beginning to challenge the notion that investment capital should only flow to the so-called “safe harbors.” With some searching and a little creativity, one may find a strong value-add opportunity in a market with higher cap rates or older inventory.

To discover a market’s CRE opportunities, we have to look to its overall economic activity. What industries are growing? Which submarkets offer the best opportunities? Is the market bringing in more professionals, students, tourists?

Atlanta, Georgia is a perfect example. Atlanta is one of the biggest and most prominent cities in the South, yet its real estate market has languished behind others in its recovery from the recession. In fact, a Jones Lang LaSalle report listed Atlanta as one of the “Top 10 Hospitality Markets in which to Sell.” This shows how crucial tourism will become to Atlanta’s growth.

Last fall, I discussed a new attraction coming to Atlanta: the College Football Hall of Fame. Such a unique, nationally known attraction is essential to a market’s ability to attract residents, visitors, and capital.

The challenge, as always, is funding. Read the rest of this entry »

Mensch:

Noun, informal. A decent, upright, mature and responsible person.

Schlemiel:

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.

Mensch of the Week:

The Other Trumps

Unlike the other super-developer named Trump (no relation), Eddie and Jules Trump don’t seem especially interested in fame, notoriety, or relentless self-branding. Even so, the two leaders of the Trump Group have established themselves as preeminent developers of high-end residential properties in South Florida, becoming synonymous with luxury even without stamping their names on everything they touch. Since the ’80s, the Trump Group has been developing luxury hotels and condos in Miami and surrounding communities, their high-rises attracting super-high-net-worth residents with their unparalleled views and amenities.

At risk of getting all Robin Leach on you, I have to say a bit about their latest project, the Mansions at Acqualina. The planned 47-story condo tower in Sunny Isles Beach will include a Turkish spa, movie theater, and outward-projecting swimming pool with see-through bottom (for those bold enough to swim in mid-air). Oh yeah, and the two-floor penthouse alone is priced at $55 million, complete with $5 million of furniture–all set for Tony Montana to move in.  

Keep in mind, the Miami area was one of the worst casualties of the housing bust and financial crisis of 2008-09, and has since experienced a lending market far chillier than its subtropical climate. Even though the Trump Group builds for a niche clientele–who are not just wealthy, but ultra-wealthy–a new luxury property in Miami has been too speculative for most lenders.

Yet the developers managed to close on $160 million in construction financing to make the project possible (a decent chunk of that amount earmarked for the see-through-swimming-pool-in-the-sky, presumably).

The consortium of lenders that provided this amount weren’t convinced by the developers’ reputation alone. The financing agreement stipulated $320 million in presales, reports the Wall Street Journal, as well as downpayments from the buyers.

It’s usually difficult to find $160 million in financing, but not when the project being financed has already been sold. The Trump Group made this deal a no-brainer. Ultimately, the developers’ greatest achievement has been in drawing interest and commitments from the wealthiest clients out there. This clientele is a small and extremely desirable group–attracting these buyers no doubt came with an enormous amount of competition. Read the rest of this entry »

At the end of last year, Colliers released a detailed report on the state of America’s retail real estate (click for PDF), including market-by-market data and predictions for the growth and evolution of the sector. Naturally, a great deal of the study looks at the relationship between brick-and-mortar and online retail, and how the latter will influence the market for traditional retail properties. Colliers includes a list of estimated store openings, organized by company, for retailers with the highest number of openings in 2013.

Here are a few of the stores–all restaurants of one kind or another–expected to open new locations this year:

• Buffalo Wild Wings (105)
• Chipotle (165-180)
• Dunkin’ Donuts (330-360)
• McDonald’s (220)
• Qdoba (70-85)
• Panera (115-125)
• Starbucks (300)
• Pizza Hut (150)

All of these numbers are Colliers’ estimates. And yes, Yum! brands’ (NYSE: YUM) Pizza Hut does indeed have 150 potential openings for the year. These brands, along with dollar stores and drug stores, are among North America’s fastest-growing retailers. This, I suspect, tells us a lot about where the retail real estate sector is headed. Read the rest of this entry »

Executive Interview:

David E. Arnold

Co-President & Chief Executive Officer – East

PKF Consulting

David Arnold is Co-President and Chief Executive Officer – East with Colliers PKF Consulting USA.  He is in charge of the firm’s Eastern Region and its Philadelphia office. He has more than 25 years experience in hospitality and real estate development planning. Mr. Arnold has earned a national reputation as a consultant within the conference center industry. He is the original author of The Conference Center Industry: A Statistical and Financial Profile, the most comprehensive publication dedicated to that industry. He is one of the founders of the International Association of Conference Centers (IACC) and serves on its board of directors.

Mr. Arnold has conducted and directed economic feasibility studies, marketing strategies, corporate strategic planning studies, and financial analyses for numerous clients in the hospitality and real estate industries. He has expertise in hotel operations, marina operations, and development planning for hotels, conference and convention centers, golf courses, retail mixed-use projects, office and residential property.

He served for 12 years on the Recreational Development Council, Commercial and Retail Development Council and the Hotel Development Council of the Urban Land Institute. He was a principal author of the Hotel/Motel Development Handbook, published by the ULI.

Previously, Mr. Arnold served as the National Director of Management Advisory Services for Laventhol & Horwath and was Chairman of that firm’s International MAS Committee.

He holds a Bachelor’s Degree in Hotel and Restaurant Administration from Cornell University and is a past president of the Philadelphia Chapter of the Cornell Hotel Society. He is a recipient of the Distinguished Service Award from the IACC.

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Q: In the last year or so, have you seen conditions change in the hospitality or tourism sectors?

As we all well know, 2008 and 2009 had a devastating impact on the industry, cutting operating income by 40 percent. We’ve been clawing our way back ever since, but we’re only halfway there. Today, we are getting to the point that we’re seeing occupancy numbers approach those of 2007, but rates are still languishing behind pre-recession rates. The exceptions, of course, are New York, San Francisco, and Boston.

The hospitality industry still faces a lot of uncertainty in 2013, since we’re vulnerable to many different factors: gas prices, political questions, companies reluctant to expand, airline mergers, and so on. We think most of this volatility should settle down by 2014, and if 2013 remains flat, we can expect an uptick next year. Read the rest of this entry »