Hotel Real
Estate Investment Syndicates
The
advent of hotel real estate investment syndicates have created a new level of
opportunity for hospitality real estate 
developers by providing the opportunity
for developers to raise additional funds for cash-strapped developments (and
almost all of them are cash-strapped) that does not necessarily dilute the
developer's equity position, thus providing another level of security for the
hotel construction lender and permanent lender, alike. By preserving the
developer's equity interest through the development period of the asset, this
provides an opportunity to stave off a trip to bankruptcy court. If the
project gets into financial trouble, the developer has equity securities to
trade for more working capital, so commercial real estate syndicates make
excellent sense. The question is, which type of syndication?
But
what kind of syndication would be most helpful to your proposed project
development program? What about CDD
plans? Would this project not qualify for a TIF
financing or PILOT financing? What about premiums like tax
credits and Private
Activity Bonds? Where are these used and what works the best for my
project?
The
issue that decides who goes where in the ultimate mix is a function of time and
the perceived market risk burden of the project. Time is an issue in terms
of sequencing the financing so that everything works right. For instance,
CDD plan financing is for public infrastructure improvements and require the
improvements to be made and an inter-creditor agreement be executed between the
prime mortgagee (or Trustee, as the case may be) that satisfies bond counsel for
the CDD issuer. This places it at the end of the rainbow and is not used
for obtaining the construction financing, per se, in most conditions.
The
advent of the condo-hotel development program creates opportunities for
developers to raise the cash needed to attract financing. Remember: sooner
or later there will come a point where there is enough cash on the table to
induce a lender to close on terms that are acceptable to the borrower. The
purpose of the underwriting process is to weed out the inherently weak
candidates from serious investment consideration and frame the negotiations for
the lender.
