NEW YORK – Investing in boutique and lifestyle hotels can be a smart move, but working with lenders and underwriting deals in today’s environment requires some tweaking, according to speakers at the Investing in Boutique Lifestyle Leaders Association’s 2022 Boutique Hotels.
Atit Jariwala, CEO and founder of Bridgeton, a New York-based boutique hotel development, investment and management company, said that in the past analysts would do the underwriting, but the company realized that analysts were “completely extinguished”.
Now Bridgeton’s operations team is “very involved in underwriting any property that we buy”, he said.
Clark Hanrattie, partner at HEI Hotels & Resorts, a Connecticut-based private hotel investment and third-party management firm for branded and lifestyle/independent properties, said lenders are getting more and more accustomed to enter into agreements in the independent space.
That doesn’t mean independent hotel owners have less work to do with closing deals.
Jason Ourman, a partner at New York-based private equity firm Apollo Global Management, said the key to talking with lenders is to “take the time to tell the story.”
“At the end of the day, it’s a boutique hotel, it’s not an office building where the expense tells the story,” he said. “As a lender, we’re your partner in the business, and understanding how you’re going to execute both your income and expense strategy when the going gets tough – that’s key. But for the most part, that’s exciting, [we’re] buying someone’s expertise. You are visionaries in many ways, and we are not. Take us on board.
HEI’s Hanrattie said about half of his portfolio is made up of independent and lifestyle hotels, and he hasn’t found it particularly difficult to secure financing.
“I think what’s difficult is if you have a branded hotel and you’re now in the business of converting to an independent hotel – it becomes more complicated for lenders to be able to understand,” a- he said, adding it’s easier if the independent hotel is already operational and relatively stabilized.
He said lenders need to understand where the hotel’s demand channels are coming from and how the property is positioned.
Jariwala from Bridgeton said when his business was founded more than a decade ago, it was harder to get debt financing.
“Fifteen years ago we started as a soft brand with a flag and we were able to turn it into an independent hotel, but the lender made sure we were associated with a brand flag,” he said. declared. “We proved when we got our next loan that this brand really didn’t do anything for us anyway, it was mostly us, and [the lender] started to feel comfortable.
Ben Leahy, a partner at London-based real estate investment firm Cedar Capital Partners, said that in the United States there had been a correction in the markets, reflected by an increase in base rates during the 60 to last 90 days as well as by a widening of the spreads.
“I think the changing interest rate dynamics, as well as some lenders concerned about the recession, could generally cool the hotel finance market,” he said. “That doesn’t mean it’s closed. There are still banks that lend; there are debt funds that lend, but they are [increasing] rates and [tightening] terms.”
Leahy said Cedar Capital Partners is relatively conservative in its leverage profile.
“It’s usually 50% to 60%, all leveraged – we never go over 65%,” he said. “We’re not trying to financially organize our trades, but I think returns are going to be impacted, so prices will be adjusted. We’re seeing it in other asset classes in real time, where people have entered a due diligence phase, and they’re in 30, 45 days and going to sellers saying ‘we just can’t afford what we were previously underwriting.’ ”
Globally, Eric Jafari, development director of London-based aparthotel and lifestyle hotel group Edyn, said it was a nightmare to do business in Germany.
“We wonder when things will stabilize,” he said.
In the United States, Leahy noted that the trend of investing in Sun Belt states will continue.
His team is closing in on a property in Nashville this week.
“The number of corporate offices that are being relocated, new office buildings that are being built, is largely driven by the tax and labor situation,” he said. “It’s a trend that I think will continue here in the United States.”
However, this shift is not isolated to the Sun Belt states as a variety of resort locations are gaining traction, he said. His company owns a ski resort in Utah called Sundance Resort, which is near Salt Lake City and has several demand generators.
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