Hospitality Consulting Update from the Mgmt Experts at PGI 03-01-11

Several stories this past week that we followed as part of ourHotel Real Estate Investment hospitality consulting focused on hotel budget brands in China, government loans for smaller hotels and the average hotel real estate room sale price in 2010. Here is some of that commentary and our take on it: China is still the number one draw in hotel investment across Asia and throughout the world markets. If you are a hotel real investor or hotel asset manager evaluating this country for acquisitions and new development, the budget sector of the Chinese lodging industry is flourishing, according to this article contributed to HotelNewsNow.com, by Carlos Wolff. “Growth has been unquestionably in the budget sector in recent years, particularly with regards to brand strength,” reports Tim Sander, Research Director – BDRC Continental. They have put a lot of pressure onto upscale and mid-market brands by pushing into the market by size and growing at such extraordinary rates.” Home Inns has virtually tripled in size in the last three to four years, he noted. Jin Jiang, too, is expanding rapidly.” On the debt financing side from a hospitality consulting perspective and if you are a smaller hotel owner or hotel property management company helping your properties find funding, loans from the SBA and USDA are still being made with certain requirements. “The reality is the hotels getting financed today have the following characteristics a) US$1.5 to US$3 million; b) 50% to 75% LTV, with 65%-70% as the sweet spot; c) at least 1.25X debt service, with most lenders preferring 1.4X or higher; and d) personal guarantees from all sponsors, according to Jane Larkin at HotelNewsNow.com. Borrowers typically receive floating rates between 5.75% and 7%, 20- to 25-year terms and up to 30-year amortization. Fixed rates are available on a very limited basis and are usually more than 7%.” Room values have risen between 2009 and 2010 and if you are a hotel consultant or hotel workout advisor working with banks and special servicers and their distressed hotels, 2011 may be a good time to sell. For example, “The U.S. hotel sales’ slump that occurred in 2009 has been widely documented, also highlighting the fact that the number of hotel transactions increased substantially in 2010. The average price per guestroom in Hotel & Leisure Advisors’ database of hotel sales increased by 60.9% from USD $90,326 in 2009 to USD $145,348 in 2010.” If you are looking at China for hotel acquisitions and development, what is your take on the budget brands versus luxury? Or, what is the lending climate like if you are trying to buy hotels without government money?? If room sale valuations are on the rise, what takeaway as a lender from a hospitality consulting standpoint makes this year a really good time to sell or not to sell your owned real estate hotel portfolio???