Guest Writer: Troy Antonik, Executive VP and CFO at Key Performance Hospitality Management
Visiting your in-laws… Going on vacation… Visitors coming from out of town…
Business travel plans… Oceanfront… Sporting events… Mountaintops…
Theme parks… Campus… Business parks… Lakefront…
What do all of these scenarios have in common? Most, if not all of them involve an overnight hotel stay.
Why? Because it’s convenient, housekeeping is provided, food and beverages are often available and a comfortable, clean bed is waiting for you upon arrival.
We all use hotels during our travels but have you ever thought about owning a hotel?
Probably not, as purchasing and running a hotel involves a significant capital investment as well as experience and knowledge of what goes on behind the scenes in order to make a hotel run effectively and efficiently.
That being said, many individual investors do buy and own stock in companies such as Hilton, Marriott, Intercontinental Hotel Group (IHG) as well as hospitality based real estate investment trusts (REIT’s) so in theory you may be investing in hotel assets; just not individual assets.
Normally, hotel assets are owned by large private equity firms, insurance companies, banks or REIT’s and individual investors have limited to no opportunity to invest in individual assets.
However, one can invest directly in individual hotel assets with a number of entities using funds from their self-directed IRA’s.
As with any investment there are a number of things to consider when investing in hotels.
+ Where is the asset located?
+ What are the demand drivers in the marketplace where the asset is located and are the demand drivers stable?
+ What is the occupancy and average daily rate?
+ Is there deferred maintenance or a franchise required property improvement plan (PIP)?
+ What is/will be the capital structure of your investment? Is it strictly a passive investment or is there a preferred/fixed return that generates annual cash flows? (Note: take time to educate yourself and fully understand any overly complex capital structures as some capital structures strip out cash flows leaving little for certain classes of investors.)
+ What is the expected EBITDA? (as a frame of reference most well run hotels operate with a 25%-30% EBITDA margin)
+ Is there a franchise and if so, who owns the franchise (i.e. Hilton, IHG, Marriot, Starwood, etc.) and what is the term of the franchise agreement?
+ Is the franchise or lack thereof appropriate for the demographics and demand drivers of the hotel’s market?
+ Are there any new hotel properties being built in the immediate vicinity? What is the anticipated impact to the hotel(s) you are investing in?
+ What is the exit strategy and related timing for the sale of the hotel(s) you are investing in?
+ Do the projected returns appear reasonable and supportable or are they overly aggressive?
+ Who is the management company responsible for overseeing the hotels on a day to day basis and what is their experience in doing so?
+ What experience does the asset manager have with executing and managing large commercial real estate transactions?
+ Do the management company and/or the asset manager have a vested interest in the properties and their performance?
There are a number of attractive investment opportunities in the hotel and hospitality market and if you follow the above recommendations and do your diligence, you too can call yourself an owner of a hotel or group of hotels with an investment of as little as $50,000.
If you would like more information on investing in hotels, please call us at 407-878-5500 or contact one of us via email and we would be happy to schedule a time to meet or discuss.
Gene Curcio, Chairman genecurcio@kphmgt.com
Louis Robbins, President & CEO louisrobbins@kphmgt.com
Troy Antonik, Executive VP & CFO troyantonik@kphmgt.com
PELTA RE Ventures LLC was founded in 2015 to acquire, develop, own and operate hotels. Our business strategy is to preserve, protect and grow invested capital without being limited or controlled by large institutional investors.
For information on our management team and our assets owned and operated, visit www.keyperformancehospitality.com. The views expressed in this article are solely those of the author and do not necessarily reflect the opinions of NuView IRA or its employees.
