Hotel Finance Resource
Hotel Finance News
September 20th 2006

Dear Lyman,

Greetings from Pete Whiskeman and Lyman Aldrich of Hotel Finance Resource

We are pleased to welcome you to Hotel Finance Resource's brand new twice- monthly newsletter: "Hotel Finance News."

In Hotel Finance News, we'll leverage our relationships with over 60 lenders nationwide to bring you the latest information on loan programs and joint venture opportunities currently available in the marketplace. We will also bring you expert commentary on the current issues that affect your hotel’s value.

It is our privilege to communicate with you, so we want to make sure that you are interested in receiving Hotel Finance News. Please use the links at the very top or bottom of this newsletter to change your email address, indicate your preferences, or to opt-out.

In this first issue, we’ll present “Today’s loan profile:” a non-recourse loan for acquisition and renovation. And, we’ll give you the latest information on the Gulf Coast lodging industry courtesy of our friends at Smith Travel Research.

Thank you for being a part of the HFR community!

Sincerely,
Pete & Lyman

in this issue
  • Come See Us at Intercontinental Hotels Group America's Investment and Leadership Conference
  • The Gulf Coast Lodging Industry - Revisited
    by Jan D. Freitag, VP, Smith Travel Research
  • Today’s Loan Program Profile: A non-recourse loan for acquisition and renovation
  • About Hotel Finance Resource

  • The Gulf Coast Lodging Industry - Revisited
    by Jan D. Freitag, VP, Smith Travel Research


    Almost a year has passed since Hurricane Katrina hit the gulf coast. The performance of the lodging industry in the gulf coast reflects the impact of the sharp decrease in supply coupled with an influx of demand by emergency workers and displaced residents. Table 1 shows the room revenue changes from the first six months of 2005, prior to the hurricane vs. the first six months of 2006. While the state’s revenues increased only slightly, the performance of markets and tracts varies widely. Take a look below at the performance of hotels in the New Orleans market through June of 2006.

    New Orleans:
    The New Orleans hotel industry lost almost 70% of its room inventory in September 2005, when compared to June 2005. Of the 38,322 rooms, only 11,900 remained open for business. In June of 2006, the inventory of 28,400 rooms available is over double the inventory of nine months ago but still 26% below last year’s stock.

    The combination of a drop in rooms available and rooms sold lead to an increase in occupancy through June. For the first six months of 2006 occupancy increased 2.2% to 71.2%. Rate increase was a robust 11% to $128.63.

    In the submarkets, we observed similar trends. The Metairie/Airport tract lost 3,000 rooms but demand YTD only decreased 3.3%, increasing occupancy by 24.5% to 82.4%. Rates subsequently rose 45.5%, to $98.92.

    The East/Slidell tract saw its room inventory diminished by 65%, down to 2,200 rooms. In June of 2006, 3,100 rooms were open, a number still 52% below last June’s number. For those existing hotels occupancy increased 42.1% to 83.1% and YTD rate increased 59.2% to $93.55.

    In the hard hit Central Business District / French Quarter tract we observed the largest decrease in room count. Of the 24,700 existing rooms in June of 2005, only 5,600 rooms were still open for business in September. This June some 19,500 hotel rooms are welcoming guests again, but this number is still 21% below last year’s total. Demand decreased as well and occupancy is down 10.1% to 66.1%. The ADR increased through June by 4.2% to $146.09

    Smith Travel will continue to monitor the performance of the hotels in and around New Orleans and report on the recovery of this important lodging market.

    About STR: Smith Travel Research is the recognized leader for US Lodging Industry benchmarking. For over 20 years, STR has collected monthly and daily operating data and reported on the state of the U.S. lodging industry, maintaining one of the world's largest lodging industry databases and publishing an array of valued industry research. For more about STR and its services, visit the web site www.smithtravelresearch.com.


    Today’s Loan Program Profile: A non-recourse loan for acquisition and renovation



    This particular loan program is for experienced hoteliers that have a track record of renovating hotels and increasing their values. It allows you to buy and renovate a hotel or renovate a property that you already have in your portfolio. The property has to be cash flowing at the time of financing which means that there probably can’t be a “deep” renovation. The idea is to use a non-recourse loan to get your renovations completed, ramp up the value of your hotel, and then refinance the property in the 3rd year for the long term at lower rates.

    Benefits:

    • The loan for the hotel and the renovation is non-recourse.
    • The loan is based on an appraisal of future value or a debt service coverage ratio of future net operating income, whichever is the lesser amount.
    • For the hotels that over perform during this period, there is a possibility of an “earn out” to increase your loan proceeds.

    Here’s an example of how the funds are advanced:
    Let’s assume that you buy a hotel for $15 million and that the lender finances 75% of the purchase price or $11,250,000. The property improvement plan will cost $3,000,000. The lender will fund the draws as you need the funds for the renovation and at completion the loan will total $14,250,000.

    Details:

    • The lender offering this program is a $180 billion dollar asset management company with investments on 5 continents.
    • This loan would be a floating rate mortgage with terms of 24 to 36 months with possible extensions in some cases.
    • The maximum loan size is the lesser of 75% to 80% of the appraised value of the hotel at stabilization (usually 3 years in the future) or a debt service coverage ratio between 1.05 and 1.20 based on a fixed rate constant.
    • The minimum loan amount is $10 million.

    Please contact Lyman Aldrich at 901-854-6366 or email at Aldrich@hotelfinanceresource.com to discuss this and other financing options.


    About Hotel Finance Resource



    HFR has relationships with over 60 lenders nationwide to bring you the best solutions to your hotel financing needs.

    In the past 7 years, we have successfully completed over 2,200 hotel financing transactions closing loans totalling over $550 Million dollars.

    You can benefit from each of our three senior partners’ 30 years experience in hotel, real estate, equipment and general finance.

    Our depth of experience and our relationships make
    Hotel Finance Resource a company you can trust.

    Please call Pete or Lyman today at 901-854- 6366.


    Come See Us at Intercontinental Hotels Group America's Investment and Leadership Conference



    On October 5th, Pete and Lyman will be in the
    Hotel Finance Resource booth #1035 at the Metro Toronto Convention Center, Toronto Cananda.

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