FLEXIBILITY PROVES TO BE A KEY IN TODAY’S FINANCING LANDSCAPE

By Michael Sonnabend,
Principal, AFC Realty Capital

In the intricate landscape of today’s capital markets, it has become increasingly important for financial intermediateries to remain flexible in their approach to securing financing. It is crucial for the investment banker to "get the deal done" in a manner which is most beneficial to the client, who must realize that multi-million dollar financial transactions are made up of more than loan amounts and interest rates.

Nowhere is this truer than in the hotel industry where critical elements such as sponsorship, market trends and supply/demand factors drastically change owner and investor needs. In this dynamic market sector, we are forced to become creative, relying on key relationships, market expertise and an imaginative approach to effectively structure deals on behalf of our clients. This is the difference between merely closing a deal and adding value.

An apt illustration of flexibility in financing can be seen in a recently completed assignment by AFC Realty Capital for a 200-room full-service Sheraton hotel located in a suburb of Philadelphia. We were able to arrange a $17.6 million non-recourse construction loan for the development of the property despite shifting deal characteristics and obstacles.

Originally retained to pursue financing for the renovation of a 100-room Ramada Inn which occupied the site, AFC was soon asked to change direction and secure funds for a new-construction, full service hotel.

Utilizing our relationships and depth of experience, we successfully secure a ground-up, new-construction loan which would permit the development of the new Sheraton hotel along with 20,000 square-foot of meeting space. The loan - which was for a four-year term and is priced based on a floating rate of based on Libor - was arranged with the original lender and preserved the favorable initial terms. Best of all, the full leverage loan provided advantageous rates without relying on sponsor recourse loan.

Many of the factors contributing to the increasing need for flexibility in financing can also be attributed to a shift in the way capital providers now view lodging facilities in various mid-markets.

Traditionally, capital providers would concentrate their efforts on providing funds to larger brand hotels in the country’s recognizable major markets. However, that has begun to change and these institutions have become interested in supplying capital for properties in secondary and tertiary markets.

Financial institutions recognize the importance of brand identity in the secondary and tertiary markets as a primary driver of rate and occupancy. They are willing to reward that identity with market terms that are comparable to those in primary markets.

AFC Realty Capital and AFC Hotel Finance Group have completed more than $500,000,000 million of transactions over the past year which illustrates the growing willingness for capital providers to become active in mid-markets.

For example, in just one record month we closed $58 million of financing for six hotel properties located in six different states throughout the country. The funding represented over 700 rooms in a diverse group of separately-owned franchised hotels carrying Starwood, InterContinental, Marriott and Hilton brands in secondary and tertiary markets in Georgia, California, Iowa, Connecticut, Kentucky, Indiana and Florida.

These trends have contributed significantly to the redefined role of the real estate investment banker. Once viewed primarily as order-takers, the successful intermediary must be more creative and flexible, utilizing tools such as proprietary equity, development expertise and marketing creativity to structure financing that is most cost effective for the client while still attractive to the capital provider.

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Michael Sonnabend is principal of AFC Realty Capital, a an innovative real estate banking firm specializing in debt and equity financing, investment, development, and consulting/advisory services. The firm has been instrumental, both in a principal and advisory capacity, in financing, investment and development transactions aggregating in excess of $10 billion.


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