Frequently Asked Questions
“For Broker-Dealer Use Only”
1) Why is a hotel investment attractive now, in this economic environment? I read the newspapers and the news is not very bullish. Is the timing right?
The weak economy and the limited access to debt have created revenue pressure on existing hotel owners, resulting in some of the highest cap rates, lowest purchase prices, or best values in decades. We are now seeing improvement in operating fundamentals so the timing is good. We still have high caps but revenue has been improving in 2011.
2) Why does the Fund wish to acquire Select Service Hotels?
Select Service has some of the highest operating margins in the industry. Additionally, Limited and Select Service Hotels are less affected by the cyclical nature of the commercial real estate and overall economic down turns.
3) How important is the Hotel Operator to the success of the investment?
Critical, the Hotel Operator manages the day to day operation of the hotel. Additionally, they should perform revenue management functions; increasing the incremental revenue to the hotel as well as keeping an eye on expense. That’s why the Fund requires the Hotel Manager to invest in the hotel acquisition.
4) Does the Hotel Operator have any incentives or a stake in the success of the hotel?
The Operator’s stake is significant. In addition to their equity investment, the Operator is entitled to an incentive fee when revenue projections are exceeded.
5) What is the relationship between the Fund Manager and the Hotel Operator?
The Fund Manager is responsible for the day to day operation of the Fund. The Property Operator manages all the on-site activities of the property and reports to the Fund Manager. The Operator also provides supplemental acquisition and due diligence support to the Fund Manager.
6) How much experience does the Hotel Operator have?
The preferred Hotel Operator, Aimbridge Hospitality was formed nine (9) years ago and has grown to over 70 hotels managed with over 13,000 guest rooms. The principals have over 50 combined years of hotel experience.
7) What hotel brands or flags are best? Why?
The preferred brands will be Marriott and, Hilton because of the consistent quality of their hotels, the strength of their reservations system; guest rewards programs and group sales.
8) Will a new hotel built in the immediate market hurt the investment?
One of the Fund’s investment criteria is a high barrier to entry in that sub market, and a purchase price that is at or below replacement cost. Thus, the Fund will have an economic advantage because the purchase price should be lower than the competitor’s cost to build new. It should be noted that in today economic environment, there is limited hotel construction financing available.
9) When will conditions improve in the hotel market?
Operating results have improved in 2011. The credible market surveys (PKF and STR) are forecasting continued growth in revenue in 2012
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