Feature - Public Entities & New Hotels – A Fine Balance

In today’s real estate development and capital market environments, developing new hotels may be the toughest and most complicated projects to complete. Debt and equity markets are often very restrictive in terms of access and cost. Depending on the scale of a proposed hotel development project, deal economics (development costs versus cash flow potential) often inhibit the investor’s ability to achieve an adequate return on capital. Unlike other real estate assets, hotels are unique in their intensive management requirements, daily lease turnover, high operating and financial leverage, time to stabilization, and capital markets liquidity. Additionally, operator agreements, development contracts, franchise agreements, and land leases can cause the capital structures of these projects to become quite complex endeavors.
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