Frequently Asked Questions
1) Why is a hotel investment attractive now, in this economic environment? I read the newspapers and the news doesn't seem very bullish.
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, and best values in decades.
2) Why Limited and Select Service Hotels?
Limited and 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.
A hotel's success is equally dependent on a strong hotel acquisition and on choosing the right Hotel Manager. To ensure the success of a hotel project, it was important to partner with experienced Hotel Management firms and require that the Hotel Manager also invest in the property. The group responsible for the day-to-day profitability should be tied financially to the hotel to mitigate Investor risk. Additionally, they should perform revenue management functions; which can increase the incremental revenue to the hotel as well as insure expenses are managed efficiently.
4) Does the Hotel Operator have any incentives or a stake in the success of the hotel?
The Operator’s stake is significant. The Operator is entitled to an incentive fee when revenue projections are exceeded.
5) What is the relationship between the Manager and the Hotel Operator?
The Manager is responsible for the day to day operation of the Investment. The Property Operator manages all the on-site activities of the property and reports to the Manager. The Operator's interest is aligned with the Fund Manager's since the Operator has a financial stake in the hotel.
6) Do the principals of the Manger have any experience in the hotel industry?
Mr. Nelson has over 20 years of experience in the Real Estate industry in acquisition, development and the asset management of commercial properties.
7) What hotel brands or flags will the fund focus on? Why?
The preferred brands will be Marriott, Hilton and Starwood 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?
A new hotel built in the property’s immediate sub-market could create some challenges. But one of the 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 Investment will have an economic advantage because the purchase price should be lower than the competitor’s cost to build new.
9) How will you acquire the mortgage debt needed to acquire a hotel?
Until the credit markets improve, hotels with advantageous assumable debt and those with seller financing will be targeted for acquisition.
10) When will conditions improve in the hotel market?
Some markets have improved and we believe that we are at or near the bottom of the curve. We experienced some growth in 2010. Most creditable industry forecasts call for a significant increase in revenue growth in 2011.
11) Are there reserves?
Yes, 3% of the gross revenue will be held in reserve and 1% of the equity will be set aside.
Please call (214) 295-3585 or email: contact@phoenixamericanhospitality.com
