| Hotel financing, and especially hotel construction | | | | annum through 2011, partially aided by the |
| financing, has become one of the more difficult | | | | demand caused by displaced residents of |
| types of projects to finance in the current | | | | Hurricane Ike. |
| economic environment. Commercial financing | | | | We see hotel construction financing in the right |
| overall has been cut significantly with banks | | | | area as a good investment at this point for a few |
| tightening underwriting standards and pulling back. | | | | of reasons. Hotels require, in general, |
| Hotel financing however, has been among the | | | | approximately 12 months to construct. This sets |
| hardest hit due to the overall increasing vacancy | | | | the completion date in the second quarter of 2010 |
| rates and decreasing room rates. | | | | where some areas will see growth. Furthermore, |
| According to a March 2009 research report by | | | | because of the economic downturn, construction |
| PKF Hospitality Research, average occupancy | | | | has decreased drastically causing less demand for |
| rates are expected to decrease by 7.8% and | | | | constructions services overall. Because of the |
| room rates are expected to decrease by 6.4% in | | | | "oversupply" of construction services, it is a |
| 2009. This combination of events is estimated to | | | | buyer's market for these services which is driving |
| decrease overall hotel profits by 30.1% in 2009. | | | | down the cost to build. |
| This is the largest drop in hotel profitability since | | | | Hotel acquisition financing can be a secure |
| the great depression. It's estimated that it will | | | | investment for many of the same reasons listed |
| take until the first quarter of 2011 before | | | | above. Additionally, with the current banking crisis |
| occupancy and revenue increase. Not good, not | | | | many banks are trying to get loans off their |
| good at all. | | | | books and are often very willing to negotiate a |
| So who in their right mind, in the current | | | | significant note buy down. Just as decreasing |
| environment with this dire forecast, would offer | | | | costs for construction help keep the cost to build |
| financing for both hotel acquisition and hotel | | | | lower, buying down the note can decrease a |
| construction? We would, and here's why; all | | | | buyers cost of acquisition making these purchases |
| localities are not created equal and we believe | | | | an excellent opportunity for immediate equity. |
| that the worst quarter for hospitality has just | | | | Hotel financing in the current climate can be tricky |
| passed. | | | | and a somewhat risky venture. However, by |
| Revenues for hotels in some areas are expected | | | | taking into account the forecasted growth within |
| to increase in the last quarter of 2009 with | | | | a city, the specific location, the decreased cost to |
| fourteen cities, including Atlanta, Detroit, Raleigh, | | | | build and the always important experience of the |
| Minneapolis, Orange County, CA, Chicago and | | | | owners/management, we see the hotel sector as |
| Dallas, expecting to see an increase in 2010. | | | | one that still warrants investment. |
| Texas hotel demand is set to increase 2% per | | | | |