http://www.realestatefinance.com/ en Copyright 2009 Sat, 09 May 2009 15:42:54 -0800 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss In the rush to prevent mortgage fraud, some would argue that the baby has been thrown out with the bath water. Before the boom of recent years, so-called 'exotic' loan products existed in harmony with nature. They were rarely used, like a sharp curved knife in the back of the drawer that has no place on the dinner table but still gets used every once in a while to complete a specific task. Option ARMs and stated income loans are much like these knives. Intended to be kept away from children but very handy in a time of need for a skilled investor. In recent years these tools were offered to everyone and both borrowers and lenders have been cut deeply. We feel like there are experienced, well qualified borrowers out there who are interested in these products either as a convenience or as an investment tool. Therefore, we are going to put our toe back into the water and see how it goes. As of May 1st, our company will be offering stated income loans up to 80% of the purchase price for borrowers with six months worth of income reserves and a 680 credit score. Realtors, loan officers and construction contractors are ineligible at this time until we establish trends. http://www.realestatefinance.com/articles/return_of_stated_income_loans.php http://www.realestatefinance.com/articles/return_of_stated_income_loans.php Sat, 09 May 2009 15:42:54 -0800 For homebuyers considering purchasing a home using an FHA loan, the hassle may outweigh the advantages. Although the government has taken steps to streamline the process, its still a bit of a pain and has additional requirements that a conventional lender does not. On the upside, an FHA loan will allow those with lower credit scores, a prior bankruptcy and even a past foreclosure as long as you have maintained excellent credit since. The downside is that there are additional fees, an on-site inspection and few options. If you have the ability to scrape together an additional 2% down payment and have a good credit score, you can forgo the government red tape and qualify for a conventional loan at 95% of the purchase price. Loan fees will be lower and interest rates will be more attractive as well. You can also choose between 30,10, and 5 year fixed rates. Call for more information. http://www.realestatefinance.com/articles/95_financing_alternative_to_fha_loan.php http://www.realestatefinance.com/articles/95_financing_alternative_to_fha_loan.php Mon, 04 May 2009 10:10:54 -0800 In the current economic climate, the temptation is to cut back on marketing and promotion. While this may seem like a sensible course of action, it has the potential to harm your business in the long term. Here are a few marketing tips for surviving a recession. 1. Focus on Campaigns Be specific with your marketing activities, making them value based and targeting specific events or seasons. Some examples that have worked well for our clients include: - Running paid search campaigns supporting seasonal offers - Submitting campaigns to offer based websites like Money Saving Expert - Actively managing a late deals page on your website, with the best available rate promoted - Offering late deals for meetings / private dining and office parties 2. Flex your Rates Online Recognising that some days of the week or periods of the year will be slower, it is advantageous to flex your rates on your online booking engine and with Online Travel Agents (OTA's) to suit these periods. For example creating different rate groups, Rack Rate, Rack Rate less 10%, etc, etc It is important to understand your competitor set's rate policy and respond accordingly. 3. Consider Channel Management Products Channel Management Products such as Rate Tiger offer the ability to instantaneously manage your rates with OTA's (Expedia and Late Rooms etc). The benefit of these systems, aside from the time saved, is the control you have over your rates. Occupancy Marketing advise that you should offer the lowest or rates online via your own online booking system or at worst have rate parity, meaning you sell at the same rates via OTA's. If you do ensure that your rates are the lowest direct, make sure that you advertise this clearly on your web site. See related article - increasing your online bookings. 4. Invest in your Website Your website is your shop window to leisure customers and some corporate customer segments. It should be an accurate reflection of your product; if you hear guests saying the hotel is "so much nicer than on the website", you need to invest in your site. Your site should include an image gallery which feature the rooms and bathrooms. It should be 100% up-to-date and include useful information on events, local attractions, what to see and do. Remember in most cases, you are selling the experience not the room. 5. Optimise your Web Site Your website should be optimised for brand and location searches at a minimum. This means when someone Google's your hotel name, it appears first in Google. Your site would also ideally appear in the top 5 results for "hotel plus location" based searches. In very popular cities this might not be possible due to competition. If your site does not appear for these searches, talk to your web design or search engine Optimisation Company. This will be the best investment you can make in terms of online return on investment. A full blown optimisation programme will look to optimise all important business segments (weddings, functions, conferences, meetings, restaurant, bar, short breaks etc). If you can't afford to spend money on search engine optimisation, identify if you can be listed on travel portals specific to your region that do appear in the top 5 search results for your region. 6. eMail Marketing e-mail marketing is one of the most cost effective methods to communicate with your customers. Two elements are really important here; growing the database and the message you deliver. Make sure your business has the processes in place to capture e-mail addresses. This would include exports from your guest history database or Property Management System, visitors sign ups via your website, visitors who have inquired and opted in to receive more information. By gathering data from the above sources, even the smallest businesses should be able to add 200 e-mail addresses to your database every month. This is before running competitions etc. Having a system in place to capture these valuable leads, you then need to send a regular programme of events and offers. Many off the shelf, cost effective programmes are available to allow you to send professional looking HTML e-mails. Remember using e-mail is a good way to reward customers and offer lower rates that do not need to feature on your website. 7. Protect your Brand Online It is important you monitor and take steps to protect your brand online. When working with OTA's for example, you can restrict many of them from using your brand name in sponsored advertising. This protects other websites from advertising your hotel with messages like "lowest rates" when this is likely not to be the case. Google has unfortunately relaxed their trademark guidelines but it is still possible to stop anyone using your brand name in the copy of a sponsored advert in Google AdWords. 8. Monitor Online User Reviews Consumers are likely to check user reviews online in TripAdvisor and other review sites before committing to a booking. It is important that you continually monitor reviews posted on popular travel sites. Hotel owners can also post management responses to reviews on Trip Advisor. Managerial responses provide Hotel owners with the opportunity to respond positively to 'bad press'. See related Article on Managing TripAdvisor 9. Use a good Analytics package Running a good analytics package on your site is akin to running your business with good management accounts. You wouldn't consider running your business without knowing your cost and profit and the same should be the case for your website. Not only will a good Analytics package record visitor sources; if integrated with your online booking engine it will tell you how much money your campaigns have generated. This would include return on investment from paid search, paid listings on travel sites and importantly what terms users are using to find and book your business. 10. Respond to Market Conditions The credit crunch need not all be doom and gloom for your business. It is likely the UK short break market will be active next year as less expensive long haul flights are taken. The pound has never been cheaper against the Euro. Capitalise on favourable Euro conversion rates in 2009 by having landing pages translated and optimised with your rates and packages. Look at marketing opportunities in Europe with your Tourist Board (VisitScotland / Enjoy England etc). Similarly, the pound has fallen 25% against the Dollar in the last 2 months. It is important that you consider targeting the US market with a focussed online marketing campaign. Closing Comments... In summary, challenging times lay ahead for the hospitality industry, but if your website and online presence are in order, the internet sales channel can be an area of revenue growth for your business in 2009-10. http://www.realestatefinance.com/articles/marketing_your_hotel_during_tough_times.php http://www.realestatefinance.com/articles/marketing_your_hotel_during_tough_times.php Mon, 29 Dec 2008 12:44:34 -0800 The adage "You're always safer with heads in your beds," may still ring true, but as soft occupancy rates persist throughout the industry, experts warn against chasing demand by carelessly lowering rates. "The way we see it, there are two inherent dangers [in lowering rates to chase demand,]" said Jan D. Freitag, VP of Smith Travel Research. "One, if you're lowering rate to increase demand, you're only doing that to basically increase your RevPAR. If you do the math, it would imply that you have to make up a lot of points in occupancy to break even on the lowering of the rate." If you own a hotel with 1,000 guestrooms, for example, you'd have to sell another 77 rooms just to break even after a 10-percent drop in ADR, according to Freitag. He said the second inherent danger surfaces because the move can easily be copied by your competitors, thereby cancelling out the competitive advantage you originally sought. Chris K. Anderson, an assistant professor at the Cornell School of Hotel Administration, said the price wars that could result from dropping rates is akin to the prisoner's dilemma, in which two prisoners choose between condemning their fellow prisoner to receive a lesser sentence or risk being condemned themselves and face a larger sentence. "This little game is analogous to two properties considering a rate cut to stimulate demand," he said. "If neither cuts room rates, they achieve moderate profits. If one cuts rates and the other does not, the leader achieves short term market share as one expects the other to follow, and they both end up making very little profit if any." Said Freitag: "It's an easy move to copy, and everyone will end up worse off." Anderson said that even if you did cut your rate and your competitor didn't follow, the drop in price may still not be enough to stimulate demand. "A hotel room is only part of the travel experience, and a cut in price of this component of the travel experience may not be enough to stimulate more travelers, and as such results only in shifting--or stealing--market share, not in creating new or incremental demand." However, Jim Rozell, senior director or revenue optimization at Carlson Hotels Group, said dropping rates can produce dividends when done under the appropriate circumstances. "I'm never going to be a guy who says lowering rates does not stimulate demand," he said. "However, if you do it all the time and if you don't understand when it's necessary and when it's useful as a tool, then you have real issues." Rozell said effective rate drops are a byproduct of accurate forecasting. If you forecast out 120 days, for example, you can target a few dates to lower rates to shift group business to slower days. When done effectively, the move will not disturb the higher demand that you'd still receive on peak days, according to Rozell. Anderson said another way to affectively lower rates is to work through opaque channels. "The key here is that price reductions must be very targeted," he said. "Opaque pricing is one such method of targeted price reductions. On opaque channels like Priceline's NYOP or Hotwire or lastminute.com's 'Europe top secret hotels,' properties can offer discounts on these opaque channels where the property name is not disclosed that traditional or regular customers are not interested in. As a result, you tap incremental demand. "These opaque channels are like offering private discounts to very price sensitive non-loyal consumers while still pricing at regular rates with loyal customers." Anderson said bundling can also stimulate demand, adding that both techniques are only successful when kept private. "The key for price reductions is to keep them private to avoid dilution whether they are opaque or as bundles, or potentially generated by some sort of marketing campaign." http://www.realestatefinance.com/articles/lowering_rates_doesnt_always_pay.php http://www.realestatefinance.com/articles/lowering_rates_doesnt_always_pay.php Tue, 09 Sep 2008 21:51:22 -0800 Here yo go http://www.realestatefinance.com/articles/2008_hotel_development_costs.php http://www.realestatefinance.com/articles/2008_hotel_development_costs.php Tue, 09 Sep 2008 21:47:12 -0800 Starwood Hotels & Resorts Worldwide Inc. reported a better-than-expected 16.4 percent drop in second-quarter profit Thursday, although the stock fell after Starwood cut its full-year outlook, citing a weakening U.S. market. Starwood shares fell $4.56, or 11.5 percent, to $35.26 Thursday. The stock has fallen from a 52-week high of $74.05 last July to touch a low of $30.26 last week. "The slowdown we see continues to be consumer-led," chief financial officer Vasant Prabhu said during a conference call with analysts. He said the company's weakest markets are those where leisure business plays the biggest role in revenue, such as Phoenix and Hawaii. Overall, bookings in the U.S. are declining, Prabhu said, though he noted that cancellations are not on the rise. Net income for the three months ended June 30 fell to $105 million, or 56 cents per share, from $145 million, or 67 cents per share, in the same period a year earlier. There were no one-time items in the quarter this year; last year's second-quarter net income excluding special items was 82 cents per share. Analysts surveyed by Thomson Financial, on average, forecast earnings of 52 cents per share. Starwood attributed the earnings shortfall to a 28 percent decline in timeshare revenue and a one-time gain related to a joint venture recorded in 2007. But Lehman Brothers analyst Felicia Hendrix noted that timeshare performance, which still was better than expected, was boosted by some gains having been recognized earlier than expected. The company lowered its timeshare guidance for the full year due to lower sales in Hawaii, among other factors. International demand remained solid for the company, but it dropped significantly and abruptly in the United States in May, said Starwood CEO Frits van Paasschen. Worldwide revpar for Starwood-branded hotels open at least one year gained 6.8 percent, while revpar at North American hotels owned at least a year by Starwood grew 5.2 percent. Revenue per available room, also known as revpar, is a key gauge of a lodging company's performance. The company said it is still bullish on its long-term growth, planning more than 120,000 rooms including almost 60 percent outside the United States. "We're better positioned to manage through an economic downturn having shifted away from owning hotels, particularly in the U.S., to managing and franchising an increasingly global footprint," Van Paasschen told analysts. Starwood reduced its full-year earnings outlook, however, as it lowered revpar expectations for both the company's North American and international properties, prompting a sell-off of the stock. "The steeper-than-expected reduction in back-half guidance should temper the enthusiasm that we have seen over the last week in the wake of declining oil prices as investors refocus on the eroding fundamentals in lodging," said Thomas Weisel Partners analyst Jake Fuller. Oppenheimer & Co. analyst David Katz was less pessimistic. "Although Starwood lowered guidance (after raising it last quarter)," Katz said, "the revpar growth outlook implies that Starwood should outperform its competitors." The company now predicts 2008 earnings to range from $2.17 to $2.32 per share. Analysts forecast earnings of $2.44 per share. Starwood's outlook assumes 6 percent to 8 percent worldwide revpar growth at company-operated hotels open for at least one year and 2 percent to 3 percent growth at branded North American hotels open for at least one year. In April, the company lifted its full-year earnings guidance to a range of $2.40 to $2.58 per share. That previous outlook assumed higher worldwide revpar growth of 8 percent to 10 percent and growth between 4 percent and 6 percent in North America. For the third quarter, Starwood expects earnings per share between 52 cents and 57 cents, compared with analysts' consensus estimate of 66 cents per share. The company's outlook assumes worldwide revpar growth of 6 percent to 8 percent and North American revpar between 1 percent lower and 1 percent higher than the same period a year earlier. http://www.realestatefinance.com/articles/starwood_cuts_outlook_as_us_hotel_market_weakens.php http://www.realestatefinance.com/articles/starwood_cuts_outlook_as_us_hotel_market_weakens.php Mon, 28 Jul 2008 22:09:21 -0800 Laurence Geller has never been one to mince words. It was no different during a keynote luncheon address at the inaugural Midwest Lodging Investors Summit last week in Chicago. Geller, the president and CEO of Strategic Hotels & Resorts, told attendees there is only one way for hoteliers to make it through the current economic slowdown. "Manage it. Get over it. Don't look backwards. Look forward," he said. "It's the reality of the world. The demographics haven't changed. Gen Xers, Gen Yers, baby boomers don't want to stop traveling." Geller said the hotel industry will find new economic models to manage its way through the downturn. Believing that the glass is half-full, Geller said he looks forward to a rebound. "There are good times ahead," he said. "I cannot tell you when." He did say that he expects 2009 to be weaker than 2008--so a rebound won't occur until at least 2010. There is one tell-tale sign of a turnaround, according to Geller. "Marriott (International) is a pretty good barometer (of the hotel industry)," he said. But he likened the current state of the country to the early 1990s when the savings and loan financial industry went through turbulence similar to what banks are experiencing today. He said when that crisis passed, the hotel industry responded with double-digit RevPAR growth and went into one of its most successful periods ever. "The choice you've got to make: Are we in a cyclical world, or, because of the bleakness of the last few weeks, are you going to make the assumption that there is a new paradigm," Geller said. Geller also said the slowing new supply pipeline is going to be a tremendous boost for the industry when the inevitable upturn occurs. "The reality is the 2.5 percent or 3 percent supply (increase) is largely coming in the midmarket and upscale franchised markets," he said. "Yes, there is more stuff coming on the corner, but it is replacing stuff that is obsolete--not because it's old, but because the product is not working in the market." Geller said that construction is an impossible scenario at the present time. "The only thing that's cheap is land, and land doesn't make up that big of a piece of hotel development any more," he said. But perhaps the most interesting thoughts shared by Geller, who has been known to battle hotel franchisors on many fronts, were those about branded hotel companies. "The branded hotel companies have grown a lot smarter," he said. "The hotel chains are doing a hell of a good job. They get it. We may have dull bean-counter leadership, but they get it." He said average daily rates might drop, but not because hotel operators will resort to cutting the prices--it will be a mix of business changes that cause the drop. In the end, Geller said hoteliers simply must not get caught up in a pessimistic approach. After all, he said, it could be worse. Try sitting in his chair for a day. "Being a publicly-traded company is like going to a dentist and proctologist every day--at the same time," he said. Leave it to Laurence to call it like it is. http://www.realestatefinance.com/articles/hotel_developers_time_to_chill_out.php http://www.realestatefinance.com/articles/hotel_developers_time_to_chill_out.php Mon, 28 Jul 2008 22:08:33 -0800 Driven by changes in investors' perceptions of value across the Americas, the "hold" sentiment is the dominant investor strategy for the first time in five years - at 38.1%. Investors intending to hold their assets are followed closely by net buyers - representing 37.1% of respondents. Jones Lang LaSalle Hotels' recently released Hotel Investor Sentiment Survey ("HISS") highlights the shift of investors' investment intentions in this illiquid debt market environment. "The elevated hold sentiment evidences that many owners believe the investment market will not support their pricing expectations," said Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels. "Investors would like to acquire assets for prices at which owners are not willing to sell, resulting in a classic stalemate," Adler said. The increased short term hold sentiment corresponds to the significant decline in hotel transaction volume in 2008. "And while cash flows remain relative strong, sellers are not trade out of assets unless compelled to do so due to debt maturity, fund-life issues, capital requirements and the like". "At the same time, the ratio of buyers to sellers remains consistent with previous surveys at 5:2," said Kristina Paider, senior vice president for Jones Lang LaSalle Hotels. "The interest in buying hotels is there, the deals just aren't getting done in this illiquid debt environment. The propensity to hold assets versus sell now matches that, also at 5:2; the build sentiment has declined." Dominant hold strategies were reported in a number of markets across the Americas. In the U.S., Tampa and Philadelphia are among the cities exhibiting a dominant hold sentiment, at 51.7% and 50.0%, respectively, followed by Denver and Atlanta. The Canadian markets surveyed also saw a jump in investors' intention to hold. The dominant hold sentiment is indicative that investors have not met their pricing and return hurdles. The lowest hold sentiment was recorded in high entry barrier markets such as New York, San Francisco and Washington, D.C. "Investors are deploying renovation strategies now to improve their position for future trading and wait it out during this period of illiquid debt and perception gaps in pricing," said Paider. "Many investors are taking this opportunity to upgrade their assets and improve performance." While the survey indicated that buyers continue to outnumber sellers, deals are proving more difficult and slower to complete. However, investor interest has not completely eroded. "Notwithstanding the increased hold sentiment, there are still a significant number of buyers in the market - and there are hotels on the market in the Americas that will trade in 2008," said Adler. http://www.realestatefinance.com/articles/hold_sentiment_dominant_for_first_time_in_five_yea.php http://www.realestatefinance.com/articles/hold_sentiment_dominant_for_first_time_in_five_yea.php Mon, 28 Jul 2008 22:07:34 -0800 Hotel developers trying to arrange financing for their projects have plenty of options available, but they might have to stretch their budgets to accommodate the demands of lenders. During a session panel at this week's Midwest Lodging Investors Summit , panelists told attendees the conservative nature of lenders these days presents hurdles--but not blockades--for deals to get done. "The good news is it's not as bad as you read," said Joe Epstein, president and founder of First American Realty Associates. "There is money available from the older, traditional sources. ... I'm a big believer that a good deal always gets done in any market." Epstein said banks, savings-and-loan institutions, private lenders and regional and national insurance companies are among the sources for capital. Tom Hazinski, managing director for HVS International's Chicago office, said it is clear that developers are seeking lending from regional banks rather than Wall Street financiers because of the turbulent banking industry environment. Finding lenders willing to part with their cash isn't difficult, the panelists said. It is best for developers to focus on lenders who specialize in the hotel industry because those are the sources that best understand the business model. "Ninety percent of all to-be-built hotels are financed within a 50-mile radius of where the hotel is to be built," Epstein said. The important thing is to find a lending institution willing to take the lead, and the majority of the time three or four other banks will step in to complete the lending requirements. Of course, proving to the banker that you are a legitimate hotel-industry participant is essential. The companies able to get deals done are the ones that have a track record and have the proper documentation for the lender, Hazinski said. Epstein said bankers want to make sure developers have deep pockets to get them through tough economic situations. "Not only is cash king, but liquidity is king," Epstein said. "The thing they understand more than anything is cash. It has never, never, never been more important." Epstein said that if you don't have a feasibility study, don't know the brand the property will be or don't know the management company that will operate the hotel, don't bother visiting the bank. "Now is the time to be a Boy Scout," he said. "Be prepared." Other things to be aware of include the move away from non-recourse loans, most banks requiring personal guaranties and plenty of documentation. "It's categorically now a lender's market," Epstein said. "You do what they want you to do." "Lenders today are no willing to stick their necks out," Hazinski said. Epstein said debt-service coverage rations are in the 1.35 to 1.40 range with most lenders nationally, while the panelists said interest rates range from the low 6-percent range to 8 percent. But the challenge is getting fixed rates. "Few lenders want to fix for 10 years. Most want to fix for five (years)," Epstein said. Cap rates also are moving targets. Hazinski said the need to reassess cap rates regularly has recently grown. He said they range from 7.5 percent for full-service premium markets to 12 percent for limited-service products in weaker markets. Loan-to-value ratios are also being squeezed. The panelists said the prevailing LTV is 65 percent, but the re-mergence of mezzanine financing is doing a good job of bridging the gap. Mezz financing could take a current project's LTV as high as 85 percent, according to Heard. "Mezz was on the sidelines for a long time," Heard said. "Now, they're back. It's a little expensive, but it certainly is available." Epstein cautioned that most borrowers need the primary lender's approval to bring mezzanine financing into a deal. While the lending environment is tougher now than it was 18 months ago, it isn't the end of the world, the panelists said. The best thing that the hotel industry has going for it is that the performance fundamentals haven't sank into the abyss. "The good thing about the hotel business is it's not broken," Epstein said. "The business itself is not totally overbuilt. As long as it is not overbuilt, I truly believe that there are good deals out there that will be financed. It will be a year or two before CMBS (commercial mortgage-backed securities) come back. They were doing 40 percent of the lending when they were here. That's an unbelievable loss." http://www.realestatefinance.com/articles/financing_hotels_in_a_credit_crunch_environment.php http://www.realestatefinance.com/articles/financing_hotels_in_a_credit_crunch_environment.php Sat, 19 Jul 2008 12:41:11 -0800 Kate Pierson's Lazy Meadow Motel in New York's Catskills are liberally sprinkled with the B-52s singer's personal items collected from her touring days. After Clint Eastwood bought Mission Ranch in Carmel, Calif., he enlisted master craftsmen to restore the ranch's centerpiece, an 1850s farmhouse, to its original state. The Clarence Hotel, Dublin, Ireland What could be better than staying in a hip boutique hotel in the heart of Dublin? Why, staying in one owned by Bono (pictured above), of course. The U2 frontman teamed up with bandmate The Edge to buy this hot property, located right on the Irish capital's River Liffey. Your room will feature one of five color schemes: crimson, royal blue, amethyst, chocolate or gold, and all have Shaker-style furniture and beds adorned with Egyptian linens. If it's St. Patrick's weekend, order an Irish Shambles cocktail in the hotel's Octagon Bar. It's got Guinness, cherry juice and a champagne topper. Kate's Lazy Meadow Motel, Mt. Tremper, New York No, the sign doesn't say Stay Away Fools, but yes, love rules, at B-52s founding member Kate Pierson's self-described "cabin fantasy fever" in the Catskills, 130 miles from New York City. Pierson (pictured above), who knows a thing or two about getting into the groove, took a collection of dilapidated 1950s cabins set on nine acres and set about refurbishing them, complete with authentic '50s-style kitchenettes, Frigidaires and all. She enlisted the help of artist friends Phillip Maberry and Scott Walker, whose house was the set for the "Love Shack" video. The pair's latest conversions are to cabins #3 and #4--psychedelic suites tailor-made for two. Mission Ranch, Carmel, Calif. Hollywood giant Clint Eastwood (inset) has been the proud owner of this rambling ranch property on California's Monterey Peninsula since 1986. It boasts an 1850s farmhouse (that counts as very old in the Golden State) and a total of 31 rooms, many with Pacific Ocean views. Mission Ranch is pretty much the opposite of Tinseltown, with acres of pristine land and boundless country air the main attractions. There's also a fine dining restaurant and six championship tennis courts. Goldeneye Island Outpost Resort, Jamaica High on a ridge on Jamaica's north shore, overlooking Caribbean waters and surrounded by tropical forests, sits on an 18-acre retreat once named one of the 25 Sexiest Places on the Planet (GQ Magazine). James Bond's creator, Ian Fleming, called Goldeneye home, and he'd certainly approve of what music mogul Chris Blackwell (pictured above) has done to the place since taking over. Turtle Inn, Belize Turtle Inn, one of three Central American luxury resorts owned by famed director and filmmaker Francis Ford Coppola (pictured above, inset), is located within easy distance of Mayan ruins, rainforest hikes, waterfalls and of course the Caribbean Sea. Balinese-inspired, thatched-roof cabanas sit on 650 feet of white sand, all within a few steps of the ocean. Find a small corner of unspoiled jungle paradise. Ariel Sands, Bermuda This dreamy south-shore cottage colony and resort is named for the airy spirit in Shakespeare's Tempest, and it's easy to see why: pink-sand beaches, salmon-colored homes and hot tubs with ocean views. Actor Michael Douglas (above) spent his childhood summers at Ariel Sands, became a business partner in the 1990s, and along with Catherine Zeta-Jones, considers the place home away from home. Stargroves Villa, Mustique Rental listings for this utterly serene, Japanese-style residence on the island of Mustique, the Grenadines, neglect to mention that Mick Jagger (inset) owns the place. That only seems to add to the relaxed ambience of the dream villa where, for as little as $11,000 a week in low season and $16,000 in high season, you can dine, eat, bathe, and relax like a rock star who apparently does get some satisfaction now and then. Sundance Resort, Utah In 1969 Robert Redford (pictured above) bought land in Provo Canyon, Utah, to create a community for environmental conservation and artistic experimentation. Today, Sundance means more than just a gorgeous mountain getaway. The most famous celebrity-owned resort of all honors and supports the arts and natural world amid some of the finest skiing, hiking, fly fishing and horseback riding the western United States has to offer. ]]> http://www.realestatefinance.com/articles/celebrity_owned_hotel_resorts.php http://www.realestatefinance.com/articles/celebrity_owned_hotel_resorts.php Fri, 21 Mar 2008 23:05:43 -0800 ]]> http://www.realestatefinance.com/articles/hotels_below_budget_in_2008.php http://www.realestatefinance.com/articles/hotels_below_budget_in_2008.php Fri, 21 Mar 2008 22:54:01 -0800 It is estimated that U.S. hotel revenues will increase an estimated 5.8 percent in 2007, and grow another 5.3 percent in 2008. Both projections exceed the long-term average annual growth rate of 4.5 percent. Further, revenue growth will be heavily weighted toward growth in room rates relative to occupancy. Forecasts for revenue growth in excess of 5.0 percent should result in huge gains in profits especially when revenue growth largely comes from room rates. However, PKF-HR is concerned about the strong operating expense increases that typically occur at this point in the cycle and the negative impact they will have on profitability. Most troubling is the recent rise in costs over which management has limited direct control. Historically, one of the operating expenses that management has struggled with has been utility costs. Hotel utility department expenses consist mainly of energy related expenditures (i.e., electricity, gas, steam), along with water and sewer charges. Analysis of the historical change in utility department expenses and found an extremely close correlation (i.e., 98 percent) between the annual change in property-level utility costs and the energy component of the consumer price index (CPI) . This indicates that despite operating practices aimed at reducing energy consumption, the greatest influence on hotel utility bills has been the prices charged by the local utility company. Based on a recent survey of managers in charge of hotel utility department costs, PKF-HR finds that hoteliers are starting to gain greater control over their energy costs. Despite a 5.5 percent rise in the CPI energy component, 22.2 percent of the survey respondents reported an actual decline in utility costs from 2006 to 2007. To provide U.S. hotel operators with some guidance regarding movements in hotel utility costs, PKF-HR has conducted an analysis of data from its Trends in the Hotel Industry database of hotel financial statistics. In addition, we are pleased to share some of the energy cost saving practices reported by management in our recent survey. Utility Components In 2006, the cost of electricity comprised the greatest portion of hotel utility expenses (59.4 percent). Gas (20.4 percent) and water/sewer (17.6 percent) made up the majority of the balance of utility costs. Because some older properties in cities such as Chicago and New York still use steam for heating air and water, this source of energy accounted for 2.6 percent of the utility dollars spent by our Trends sample. From 2000 to 2006, hotel utility department expenditures grew at a compound annual rate of 5.3 percent. This compares to an average annual growth rate of 2.3 percent for all hotel operating expenses. During the six-year historical period, growth rates for the individual cost components of the utility department varied. Money spent by hotels on steam increased the most (10.7 percent), followed by gas which rose an average of 8.9 percent per year. Electricity and water/sewer charges exhibited the smallest increases. Both expenses averaged 4.6 percent growth per year from 2000 to 2006. Utility Forecast Based on a poll of participants in an annual Trends survey, it was estimated that an annual change in utility costs of 4.5 percent for year-end 2007 would occur. This 4.5 percent growth rate is the lowest single-year change recorded since 2000, except for the 5.5 percent cut in utility costs that occurred during the industry recession of 2002. Energy conservation procedures implemented by management and the installation of more efficient mechanical and structural hardware, historically have been the main practices for controlling hotel utility costs. However, according to survey participants, advanced purchases of energy on a fixed price basis with local energy suppliers was the primary reason cited for utility cost reductions in 2007. Most respondents expected this practice to benefit them in the future. A few managers mentioned that they use energy derivatives to hedge the risk of energy price movements. This practice involves buying securities that go up in value when energy prices rise so that this value increase offsets the decline in hotel profits caused by energy price increases. For 2008, forecasts show costs to rise 5.5 percent. Given our projections of lower occupancy, it might be assumed that both utility consumption and costs at the property level would follow suit and decline as well. However, our analysis of the historical relationship between occupancy and utility costs finds that changes in occupied rooms have far less impact on a hotel's utility bill compared to changes in energy prices. News of near $100 per barrel prices for crude oil has fueled (pun intended) the fears of hotel owners and operators regarding the negative impact this could have on the utility bills for their properties. Fortunately, creative practices such as fixed-price advance contracts with energy suppliers, derivative instruments to hedge energy price movements, and the implementation of "green" operating procedures have helped to tame this largely uncontrollable cost. http://www.realestatefinance.com/articles/hoteliers_must_control_utility_costs.php http://www.realestatefinance.com/articles/hoteliers_must_control_utility_costs.php Fri, 21 Mar 2008 22:50:52 -0800 Everyone repeat after me: 'I will not cut prices nor panic sell because it does not stimulate incremental demand and only serves to drive down prices.' (Jeff Weinstein, Editor, Hotels Magazine, February 08) Jeff has given us the mantra that all GMs, Revenue Managers and Directors of Sales should repeat every morning. While most analysts have continued to be bullish on revenue increases of at least 4% in 2008, that was before the employment numbers began to slide. A January research article indicated that although the industry was well positioned to weather the storm, there was one caveat. 'What will keep the economy buoyant, as well as the lodging industry, is the continued growth in employment. Historically, we have seen a strong correlation between changes in employment and lodging demand,' Woodworth observed. Unfortunately, the assumption of a continuing employment growth turned out to be short lived as the latest two government indicators showed significantly slippage in this area. The erosion in the economy has been relatively rapid. A survey of over 1600 meeting planners indicated that for only 37% of them were their meeting plans for 08 were unaffected by the economy. (MeetingNews on MiMegasite February 26, 2008) Okay, disposable income upon which leisure travel is dependent is shaky , the continuing credit crunch is impacting corporate travel and now the meetings market, what is a revenue manager to do to stop the bleeding and stimulate demand if not cut rate? * Monitor Changes to Market Segment Activity Daily. This should go without saying but many daily flash reports do not carry lines that compare daily activity year over year by market segment or month over month or YTD by market segment. Reports that include percentages of occupancy by market segment are a graphic way to detect downturns. This is an 'early warning' signal that will allow you to take action before the slippage becomes worse. * Manipulate the Rate Structure - don't lower it! Closely monitor inventory and rate on the OTAs. Open discounts to more room types during periods of low demand. Participate in promotions with the OTAs until you reach the goals of the promotion. Close inventory to lower rated rooms when demand warrants it. Train the reservations staff to close each reservation by skillfully offering room type options at different price points if that's what it takes to convert the call. * Evaluate Channel Distribution. When the revenue management strategy was first developed last fall, what were some of the distribution channels that were not included due to high commissions, relatively low production, etc? A high commission on some revenue may be better than no commission on unsold rooms. Were the Opaque channels abandoned as requiring too deep a discount? A discount on an opaque channel is not a lower rate structure but a way to expose inventory to markets that you may not have exposed the hotel to in the past. In both of these scenarios, you control the inventory. * Dynamic Packaging. Packaging options on the hotel website, distribution channels and channels such as TravelZoo provide an opportunity to expose your hotel, generate incremental revenue and 'disguise' the rate within the package. Packaging on the hotel's web site is the cheapest and easiest way to generate incremental business but you have to drive your customers and potential customers to the site through effective SEO (Search Engine Optimization) and CRM initiatives. * Monitor the Hotel's Online Presence. Especially in difficult times it I more imperative than ever to monitor the hotel's online presence. Pet peeve, make sure that the links work everywhere you are listed. I logged onto a CVB site recently and four of the seven hotels whose links I clicked didn't work. You can't have an online presence unless you are 'present'. There are tools that can assist you in this that can make this process easy and give you the info to make good decisions. The Avalon Buzz Report among others makes monitoring your online presence and that of the competition easy. These reports can also expose opportunities to fill gaps in demand with ecommerce initiatives. * Correct Deficiencies. If your hotel presence online monitoring tool uncovers areas where you are not in rate parity, correct immediately. As well, there may be some links on sites that were enabled years ago that no one was aware of and are therefore unattended. These can have erroneous information and rates. I discovered this with a simple search for an independent hotel client. The hotel was offering an NFL special on an obscure site that no one at the property was aware of. * Respond to Critical Online Reviews. Respond with a measured response to any online review as to how the deficiency has been corrected and or how a situation surrounding a less than optimal guest experience occurred. Ensure that there are no areas of the hotel that you would not like to see in pictures or videos posted on TripAdvisor. One client took the response thing to a whole new level and even responded to positive reviews with a Thank You response! Diligence and creativity are the hallmarks of crafting a contingency revenue management strategy and for many of you the time to implement a contingency plan is here. I suggest one more thing to implement at your stand up meeting each morning with the GM and DOS. Prior to analyzing the numbers and starting the day, repeat Jeff Weinstein's mantra, in unison - 'I will not cut prices!' http://www.realestatefinance.com/articles/contingency_hotel_revenue_management_strategies.php http://www.realestatefinance.com/articles/contingency_hotel_revenue_management_strategies.php Fri, 21 Mar 2008 22:46:58 -0800 If you are a hotel developer, whatever plans you had for 2008 may have to change. It has been a sellers market for the past few years and access to financing has been easy and cheap Bringing a property to market or entering into an acquisition in the coming year will test the abilities of your marketing and abilities. Here are some major considerations that call for new strategies: * Scrutinize financing. It's become a turbulent and uncertain capital market. Sellers in 2008 will need to know a lot more about the capitalization plans of prospective buyers. You will need to direct your advisors to dig deeper into the details of buyers' financing plans. Any offers that are presented should be accompanied by a detailed explanation of a prospective buyer's financing plans. Active buyers in recent years had no difficulty lining up adequate capital to close deals, and debt was usually the least of the challenges in completing transactions. . Not so going forward. Financing in '08 will be the key element to most deals. * Study the supply side. There is an unprecedented amount of new hotel supply in the development pipeline in many regions of the country. Your brokerage team needs to have extensive local market knowledge of which planned and proposed hotels are actually going to get built, their respective sponsorship and viability. An accurate and timely portrayal of the future supply side of any market will aid in presenting existing product to a skeptical buying market. If you are buying or selling in a market area where there will soon be a significant additional new inventory of rooms, you're going to have to be more thoughtful and realistic in pricing. We know, for example, that some planned or proposed properties in San Francisco, Phoenix, Seattle or the Greater Los Angeles area are unlikely to be built because of unique approval issues or other complications. On the other hand, some planned projects will impose a major impact on the downstream revenues of properties up for sale. * Evaluate regions. As a prospective purchaser, you must become more geographic in your analysis. 1) Supply Growth vs. Demand Growth, and 2) RevPar Growth vs. CPI. In 2007, with respect to Supply and Demand Growth, we "green-lighted" as strong and healthy 22 out of 50 U.S. hotel markets last year. But projections for 2008 shows that only 13 markets offer the same promising prospects. So, you must develop a pricing and offering strategy that recognizes the fundamentals in your specific market. It's important to know that nothing remains constant, and you must have current market research and strong local knowledge to avoid making bad decisions. * Know sellers' motives. You should also not get too hung up on this year's macroeconomics. Seller's motivations vary greatly. People often sell hotels for reasons other than strictly economic considerations. They may have current liquidity requirements for other projects, partnership issues, estate settlement concerns, or even retirement. These considerations must be factored into your marketing and acquisition strategies. * Consider refinancing. Selling a property may often not be necessary to achieve your end-game goals. Refinancing may be an option. Mortgage debt continues to be relatively inexpensive and available, even with the more stringent underwriting requirements resulting from the current turbulence in the debt market. There are viable options of recapitalization other than selling which may satisfy near or long-term objectives. A proper understanding of an owner's business plan is critical and may indicate other reasons not to sell. * Know it's a sellers' market. Bottom line...it's still a good time to sell hotels, in spite of the considerations cited above. There are a variety of reasons for this. There is still plenty of capital available to fund purchases. There are many exciting new hotel brands emerging that can be used to convert existing properties and reposition them in ways that add real value. It may not be as good a time to sell as we've experienced over the past two years, but, during this past decade, the institutional world has come to truly accept hotels as viable portfolio investments. * Be optimistic. In some situations, it will be easier to sell hotels at a premium in '08 than in the previous high volume-transaction years. For instance, almost half of the major hotels in San Francisco have changed hands in the last couple of years. That means if you want to purchase a property there, you're going to have to line up at the door of the one or two remaining hotels left to buy. Sellers of these hotels are in the cat-bird seat. * Use marketing fundamentals. Brokerage marketing strategies must go "back to the future," because over-reliance on online marketing tactics has failed to produce anticipated results. This is due to spam, excessive emails and the impersonality of electronic marketing. You will get better transactional performance with printed and mailed materials that contain rich photography and vivid descriptions, charts and analysis of properties for sale. People appreciate higher-touch traditional customer service and live communication in conjunction with electronic information distribution and due diligence rooms. We think a combination of traditional and online marketing services is essential. http://www.realestatefinance.com/articles/hotel_development_strategies_in_a_changing_market.php http://www.realestatefinance.com/articles/hotel_development_strategies_in_a_changing_market.php Mon, 03 Mar 2008 20:54:24 -0800 Investors say it's a good time to buy hotels. According to a recent survey, "buy" is the prevailing investment strategy for the next six months, with the proportion of buyers to sellers increasing slightly upward to almost 5:1. Prior to the credit crunch, buyers were aggressively bidding up hotel acquisitions due to their ability to obtain low debt rates at historically high leverage levels. As debt returns to more normalized terms, sellers are likely to re-evaluate their portfolios to maximize operational revenue, while buyers will initiate a flight to quality. The high cost of construction and land has kept the supply of rooms in check but investors' intentions to build have increased steadily over the last twelve months. The optimistic outlook for hotel operating performance over the next six, twelve and eighteen months has moderated somewhat due to uncertainties in the finance market and the U.S. economy in general. 38% of the U.S. select service hotel investors surveyed intend to buy over the next six months, while 31% of investors indicated a hold strategy - a shift from the previously dominant hold strategy indicated six months ago. The number of investors intending to sell assets (8%) remained constant from our previous survey. With the ratio of buyers to sellers at nearly 5:1, this remains an opportunistic time for sellers. Buyers are seeing some relief in the steady pricing increases for hotels, following four years of unprecedented, record setting sales volume, while sellers will still enjoy an active bidding process among multiple buyers. Strong institutional demand for hotel acquisitions from REITs, TICs, investment funds and a growing number of international sources remains. Due to their need to deploy significant capital, these groups are targeting select service portfolio acquisitions. Sellers looking to take advantage of the current market are conducting internal valuation exercises aimed at identifying which assets in their holdings can be marketed as a portfolio transaction to attract these institutional buyer groups. If hotel fundamentals unexpectedly decline or the debt markets experience another adjustment, it's possible that the market would see a downturn in the number of buyers, which would impact sales prices. Between July 2003 and January 2007, demand for hotel rooms increased at a greater pace than supply1. This imbalance over the last four years contributed to the increase in investors' build strategy, which lifted from 18% to 23% in the last year. It is also reflective of the hotel market cycle nearing its peak in which construction starts to increase and ADR and occupancy rate increase moderates. Interestingly, 36% of investors indicated that they plan to construct a new property in the next 12 months, while 48% of investors intend to acquire existing assets. In general, the majority of lending institutions, banks, and insurance companies continue to provide loans to fund hospitality related projects, but these lenders have reverted to more The change in the hotel room development pipeline for year-to-date September 2007 compared to the same period in 2006 supports the survey's findings of owners' increased intention to build2. The number of rooms under construction has increased by 20.1%; rooms in pre-planning have increased by 70.2%; in total, the rooms in the active development pipeline has increased by 14.9%. Overall, the current finance market is placing a greater emphasis on a flight to quality, meaning that having solid sponsorship, a well positioned property in a major market and an affiliation with a top flag is more important than ever. Overall loan leverage has reverted to a more conservative level with increased debt service coverage ratios being tested against actual versus pro-forma projections. The construction lending market remains active due to a number of large balance sheet lenders with capacity to help fund new development. In general, the lenders with capacity to fund such transactions are quickly filling their pipeline for Q1 2008 and continue to be selective on which projects to back. Lenders report they currently prefer to fund projects in larger markets and with higher-end flags. Survey respondents indicated that the overall value of hotels, in general, has been negatively impacted due to current finance market conditions. This impact has resulted in a slight upward adjustment for going in cap rates. In general, however, the investment market-- including both buyers and sellers--has recognized this shift and adjusted expectations accordingly with limited impact on transaction volume. Nearly two thirds of investors reported that the overall value of the hotel market has been somewhat negatively or negatively affected with only 2% of investors responding that the current credit market condition affected them positively. In contrast to the first half of 2007, in which the flexible lending environment pushed overall cap rates downward and value of assets upward; the current market is realizing the overall value of hotels has been somewhat negatively affected by the availability and cost of arranging new financing. On the other hand, long-term holders have continued to benefit from the significant appreciation of real estate due to the healthy fundamentals which helped elevate revenues and increase property NOIs over the past several years. Mid-market hotels remain the most popular segment for investment (39%), closely followed by upper mid-market (38%), according to survey respondents. This represents a gradual but notable change of investor preferences within select service hotel segments. Investors attracted to mid-market segments decreased from 48% last year to 39%. On the other hand, the number of investors looking to acquire in the upper mid-market segment has increased from 32% in the December 2006 survey to 38% in the current survey. In total, 77% of investors were attracted by the higher margin levels they obtain from operating these mid-market and upper mid-market hotels. These brands tend to be less capital and labor intensive, while at the same time, are able to draw high levels of guest retention during various economic cycles. As of year-to-date September 2007, the average RevPAR achieved for mid-market brands was $59.00. For the same period, RevPAR for upper mid-market hotels was $84.00 which is 42.3% higher than that for mid-market brands3. Increased revenue translates to a stronger bottom line for investors as both mid-market and upper mid-market hotels achieve high operating/profitability yields. Investors' desire for extended-stay product shows a marginal but steady increase from 11% to 14% over the last year. This can be attributed to an efficient business model that includes an average 14-night stay, lower labor costs due to limited amenities and housekeeping, ultimately resulting in higher profit margins. Additionally, there is still a tremendous growth opportunity as only half of the top MSAs nationwide have extended-stay assets, and the segment comprises less than 6% to 7% of the total select service hotel room count. The Southeastern U.S. region remains the most sought after region for select service investment, with 35% of investors expressing an intention to buy and/or develop in this region within the next six months. The Southwest and Mid-Atlantic regions are equally popular amongst investors with 15% targeting each region respectively and another 12% of investors targeting the Midwest. California (9.6%), the Northeast (8.6%), and Northwest (4.3%) represent the remaining portion of investors' target regions. A smaller portion of select service investors are interested in the Northeast and California. This is largely attributable to the high barriers of entry related to the cost of acquisition and development and stringent approval and development requirements in these regions, making larger investments more economically attractive. The median hold period for select service hotel assets remains five years. The average holding period decreased from 70 months to 61 months since the last survey. Investors' expected term to reach required rate of return decreased, which can be directly attributed to increased operating performance and the steady rise in hotel values achieved during 2006 and the first half of 2007. While varying among asset type and by investor, the application of room revenue multipliers is still a popular method for valuing select service hotels. On average, investors are targeting room revenue multiples of 3.1x. Investors are still willing to pay a "going in" premium with confidence in the market fundamentals and their ability to improve upon historical profit levels. Investors are targeting a 9.3% capitalization rate on average when acquiring select service assets. The lower capitalization rate reflects the targeted acquisition of premium branded properties in high barrier-to-entry markets. The median for leveraged IRR was 20.8%, an 80 basis point increase from the previous survey, which can be attributed to lower LTV requirements as well as the increased cost of debt. Investors are seeking leveraged assets with a median initial LTV of 70% of the purchase price. Investor expectations for hotel operating performance to increase during the next six months remains positive at 57%, even though that expectation has declined from 72.1% in the June 2007 survey. Looking further into the future, the majority of investors (54%) anticipate an increase in hotel operating performance for the next 12 months. The general expectation that hotel operating performance would increase showed only a minor change - from 48% to 46% for the next 18 months. However, in the next 24 months, there is an upturn in expectations with 54% expecting an increase in performance, up from just 38.7% in June 2007. Uncertainty with the finance market and the growth of the U.S. economy overall contributed to a slight softening of the optimistic results of the previous survey. Some investors seem to believe that the hotel market cycle is nearing its peak and, as a result, ADR and occupancy rate increases will moderate. Investors have a more optimistic outlook for the next 24 months than was expressed in June 2007, suggesting that market fundamentals will recover within two years. http://www.realestatefinance.com/articles/investors_say_its_a_good_time_to_buy_hotels.php http://www.realestatefinance.com/articles/investors_say_its_a_good_time_to_buy_hotels.php Wed, 06 Feb 2008 01:14:59 -0800