Successful joint ventures for hotel development, acquisition and financing
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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
22 May 2012
At JMBM's recent hotel finance conference in Los Angeles, a panel of experts talked about how well joint ventures are working to provide financing for hotel development and acquisitions.
The hotel joint venture experts
The Joint Venture Panel from Meet the Money® 2012 featured 5 veteran hotel investors and operating partners, and was moderated by Guy Maisnik, hotel lawyer and Vice Chair of JMBM's Global Hospitality Group®. The panelists were:
- Mark Burden, CEO, Rim Hospitality
- Lamont Meek, SVP and COO, Circa Capital
- Rick Frank, SVP Hospitality, Behringer Harvard
- Jonathan Martin, VP, AEW Capital Management
- Kam Babaoff, Managing Director, Ensemble Hotel Partners
Each of these participants has a long history of investing in and operating hotels, and they represent the spectrum of views currently prevailing in the industry. While each has been successful, each has taken a different road to achieve success. The individual strategies and approaches of each stands out, as does the talent and vision necessary to navigate some of the toughest years in the hotel industry.
Sweet spots for hotel joint ventures differ
While joint venture investors tend to have their individual sweet spot -- a specific set of criteria which makes a deal attractive -- they often find deals slightly outside their comfort zone. And we witnessed some indication of that on this panel.
Rick Frank sees this time as "the beginning of the next cycle" and believes the market remains out of equilibrium, with a disconnect between buyers and sellers. For example, Behringer Harvard itself wrestles with an internal conflict, as it is often unwilling to sell properties for the price it would pay for them.
Jonathan Martin tells us that AEW is focusing on the top 15-20 markets, returns in the upper teens, and assets from $10-20 million. Like most of the opportunity funds, AEW stays away from ground up development. For AEW, its all about the real estate. Branding is secondary.
In contrast to AEW, Mark Burden of Rim Hospitality focuses on and believes heavily in branding. The right brand with the right asset can drive revenues. Rim also places a heavy emphasis on cost containment, particularly keeping labor costs in check. Mark is quite optimistic as Rim is closing out rate discounts and seeing the market react positively with an uptick in ADR.
Then breaking from Rim's focus on branding to a significant extent, Circa Capital is proving that this market is a great place for independent hotels. Lamont Meek tells us that Circa's hotels have rebounded to 2007 levels in 2011. Half of Circa's hotels are branded, and yet Lamont believes that it's Circa's creativity and the freedom to act on its instincts without being hampered by heavy brand requirements that has driven the positive performance of its independent hotels.
Kam Babaoff stated that based on the nature of capital returns, Ensemble is looking for something that has a value add component -- something that involves rebranding and deep PIP refreshment. Like most operating partners, Ensemble is staying away from ground up development.
How great partners make great projects
Panelists shared similar views on how great partners make great projects.
AEW's approach has been focusing on debt transactions and REO, with operating partners around the country who have competitive advantages in their markets.
Likewise, according to Rick Frank, Behringer Harvard also has a set of partners that they know and trust. Both Frank and Martin said that that they are not taking on new partners at this time. And yet, when a member of the audience mentioned a deal that sounded particularly appealing, both Rick and John indicated a willingness to look at that deal. Thus, the right deal creates an exception to the "no new partner" stance.
Lamont Meek and Kam Babaoff likewise agree upon the importance of partnering with someone who is in the hotel business and with whom they are familiar. Circa has had very few partners over its 21 year history. Both believe it's helpful to have a capital partner that understands the hotel business. It's about people not an institution. With the capital partner investing 90% or more of the required capital, that partner is entitled to control and a great deal of respect.
Mark Burden believes the biggest challenge with capital partners is fighting the pessimism still prevailing in the underwriting. However, all panelists expect optimism to prevail over the next 12 to 24 months, and that now is the time to be active and buying in this market.
Other presentations from JMBM's hotel finance conference
These issues, and more, were discussed by panelists representing some of the top players and best minds in the industry at JMBM's 22nd annual hotel conference, Meet the Money® 2012.
For all our industry friends that were unable to join us, we have posted (and will be posting) on the Hotel Law Blog information and insight shared by these industry leaders at the conference. Check back over the next week or so for presentations, analysis and summaries!
We appreciate all our speakers who generously shared their knowledge and experience, as well as all of our sponsors, without which we would be unable to bring the top-tier programming that Meet the Money® provides.
Meet the Money® 2012 presentations are available now on www.HotelLawyer.com
In addition to a number of blogs and comments about the substantive content of the program at Meet the Money®, some of the best PowerPoint presentations are already published at our expanded website. Hotel Law Blog is now just one section of HotelLawyer.com.
Please go to www.HotelLawyer.com and check out the new site. It is a work in progress and not fully functional yet, but all the PowerPoint presentations are there. From the HOME page, click on RESOURCE CENTER, and then select the last entry (Hotel Industry Presentations), or click here.
This is what you will see:
Meet the Money® 2012. "U.S. Lodging Market Outlook" by Bruce Baltin. May 2012 ( PDF )
Meet the Money® 2012. "ADA Compliance & Claims Prevention: The New Rules" by David Sudek, Kimberly Carter, Martin H. Orlick, Kim Blackseth, John Farrow. May 2012. ( PDF )
Meet the Money® 2012, "Are The Nightmares Behind Us? Economic and Capital Market Outlook" by David J. Goerz. May 2012. ( PDF )
Meet the Money® 2012. "Capital Markets Update: Transactions Financing and Market Value" by Greg Hartmann. May 2012. ( PDF )
Meet the Money® 2012. "The 2012 LIIC Top Ten" by Michael Cahill. May 2012. ( PDF )
Meet the Money® 2012. "California Hotel Values: Where Is the Market Heading in 2012?" by Alan X. Reay. May 2012.( PDF )
Meet the Money® 2012. "U.S. Lodging Industry - What lies ahead?" by Vail R Brown, Smith Travel Research. May 2012. ( PDF )
Meet the Money® 2012. "Hotel Values & CAP Rates" by Suzanne Mellen, MAI, CRE, FRICS, ISHC. May 2012 ( PDF )
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?
Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at firstname.lastname@example.org or +1 (310) 201-3526.
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.