Wednesday, May 14, 2008

Hotel Operators Perceived as More Stable than Lenders too

The recent Wall Street Journal article on the disparity in financial performance between hotel operators and hotel owners (read it here) shows a slightly different angle on one of the biggest issues that we’re seeing when trying to finance hotel development, acquisition, or repositioning deals. Lenders are refusing to consider deals that don’t involve proven brands and experienced hotel management teams.

It isn’t uncommon these days for lenders to list only three or four hotel flags that they’re willing to lend on, and even with the right flag they expect to see highly experienced hotel development and management teams in place before moving forward on a project. This is true even for developers with deep pockets and plenty of experience in non-hospitality real estate.

After reading the WSJ article it becomes apparent why lenders are so concerned about the branding and management side of hotel properties: that’s where the money is being made right now as the real estate side of the business takes its lumps.

If you’re considering a hotel development project but don’t have experience in the industry or a relationship with a top-notch operator don’t give up, but do consider partnering with a more experienced player early on in the process. Having a major hotel developer and operator on board with your project from the start can increase the odds of success, especially in today’s ultra-conservative lending environment.

The Llenrock Group


Anonymous said...

You can't leave us hanging like that. So which flags are in favor?

Llenrock Group said...

The most favored flags today, especially from the lenders' perspective, are Marriott and Hilton with Starwood holding its own in third place. In the second tier are Intercontinental Hotels and the Hyatt Brands which can still work well in the right markets.