The Cool Way to Finance Hotels
EB-5 financing exploded during the recession and has found a place in funding new hotel projects, according to Homeier & Law's Michael Homeier,who spoke at our Hotel Summit on Tuesday. (If they rally want to make a splash, get Apple to hold a big presentation for the release of the EB-6.)
The beauty of EB-5 financing: foreign investors are willing to accept a green card as most of their profit, reducing project costs. In addition, Michael says, it can serve as part of a developer's equity when seeking a construction loan.
200 of you joined us at the historic luxury Millennium Biltmore Hotel in Downtown LA.
The Kor Group principal Brian De Lowe says he loves LA, but the supply/demand metrics are so favorable, it's hard to find great assets. Kor owns two hotels in LA--one in Hollywood and another it's developing in Downtown (on Broadway). Kor is also building the one new hotel in downtown San Francisco's pipeline, a 135-room lifestyle boutique at Market and Seventh.
Another speaker, Chartres Lodging Group president Maki Bara says LA is one of the few markets that still has a positive demand-supply relationship. Downtown has seen more supply added than the rest of the submarkets, but for a good reason: In the past three years, RevPAR growth has been in the high teens to 20%-plus, she says.
Sonnenblick Development principal Bob Sonnenblick, also a panelist, says LA just finished its best 12 months ever in total volume of hotel bookings and tourism, and supply is under control. In general, the coasts are very strong but the middle of the country is still fairly flat. He's 100% concentrated on new development, but his biggest problem is that there is no land left in LA. (It's why Katy Perry is always Walkin' on Air.)
Our moderator, Arent Fox's Rich Brand, asked panelists about hotel chains launching new brands and categories. Brian says the demographic he's pursuing doesn't value a big flag, and he notes independent hotels weathered the downturn along with their bigger cousins. Maki says loyalty points matter to Baby Boomers and Gen X, but a large portion of Millennials are brand-agnostic. Bob says there are certain locations where you might be better off without a big brand if there's an external room generator you can use instead (think beaches or convention centers). In addition, construction lenders now are more open to projects without a brand.
Rich says he's seeing a lot of deals for limited and select-service hotels, and fewer full-service ones being built. Bob says the former have a higher profit margin because you don't have a big spa, room service or gobs of meeting space. "It's a rooms-only box." Brian says the debt and equity markets love limited service because they view it as less risky. For his San Francisco project, he cobbled together EB-5 financing, historic and New Market tax credits, and a low-leverage senior construction loan.