How One Company Is Pulling Hospitality CRE Back On Its Feet
For every commercial real estate venture that receives easy funding, there are dozens that struggle to hunt down the capital they need.
In the midst—and aftermath—of the recession, the tourism and hospitality industries took a major punch as families and businesses cut back on travel expenses. Not unexpected by any means; hotels traditionally carry significantly higher levels of risk due to their frequent turnover. And when the economy dips, hotels are often the first to absorb the largest hits.
Small wonder, then, that banks and lenders are hesitant to advance capital on hospitality-oriented developments, especially when some sharp financial minds are predicting a recession.
HALL Structured Finance, a subsidiary of Dallas-based HALL Group, is playing the opposite card. As a smaller branch of a larger real estate firm, divisions like HSF offer a rare, yet necessary, mix of expertise formed from intermingling a keen understanding of all aspects of both finance and real estate.
“This helps us understand each project from an owner's, operator's, and developer's perspectives, as well as a borrower’s and lender’s perspectives—allowing HSF to serve a rather particular niche and operate with a special advantage," said HSF president Mike Jaynes.
“We leverage off of our parent company, HALL Group, and are able to look at real estate from a different perspective than most lenders,” Mike says. “Because we are a private, non-regulated direct lender, we are able to meet the needs of some very unique projects.”
Companies like HSF lean toward a contrarian investment strategy, seeking to lend in markets and properties that are struggling relative to other subsets of commercial real estate. With its special emphasis on hospitality, HSF provides financing to hotel developers and investors for major asset repositioning and renovations, adaptive reuse, and ground-up construction—such as with San Francisco's Hotel Vitale (above), an HSF success story and example of creative financing solutions.
Although HSF provides financing for most commercial real estate product types, the firm specializes in hospitality, a subset often overlooked in the conversations surrounding mixed-use and residential buildings.
An example of this expertise lies in one of HSF’s most recent loan closings, which recently began construction a stone’s throw from Milwaukee, Wisconsin: a new TownePlace Suites hotel (rendered above). The firm is providing a $10.9M loan for the four-story, 112-room Marriott-branded hotel.
Located within the master planned Drexel Town Square development in the heart of the Oak Creek suburb 13 miles south of Milwaukee, the new TownePlace will be nestled in the bustle of Wisconsin suburban life alongside a public library, retail stores, Oak Creek Parkway (below), mixed-use office spaces and residential apartments, a new city hall and 18 acres of green space.
With loan sizing expanding over the last several years, Mike sees no end to this division’s rapid growth. In five years, HALL Structured Finance's average loans have increased from a range of $6M to 20M to $20M to $40M.
The company lends anywhere from $10M to $55M for hospitality (and other) developments across the US. HSF has $195M on its books, including the recently closed Milwaukee-Oak Creek TownePlace. Five additional construction loans are in the closing stages in New York, Florida, Delaware, Illinois and South Carolina totaling a further $135M.
HSF is entering 2017 with a keen eye on their role in the future of American hospitality.
“This year, we predict that our business will continue its strong growth patterns in the wake of restrained traditional capital and regulations such as Basel III,” said Jaynes. “We have set a company-wide goal at HSF to provide $300 million in construction loans in 2017, and feel optimistic that there is adequate demand in the market to achieve this total.”
To learn more about Bisnow partner Hall Group, click here.