You are working for a hotel ownership corporation. Your development and feasibility team has identified a...

 

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You are working for a hotel ownership corporation. Your development and feasibility team has identified a resort hotel in Florida that appears to be a great opportunity. The acquisition team has identified three potential capital structures and has sourced these using entities your company has already done business with in other transactions. Your job is to examine the relative risk, and the return to your company for these three capital structures (stacks). Background As we have already learned, the financing structure used in the purchase of a hotel asset is virtually always some combination of debt and equity. A lender will never finance 100% of an asset - in fact they will rarely finance more than 60% of the asset because the hotel industry is classified as fairly high risk. In the event of a forclosure the lender wants to be assured that they could sell the asset and recover their entire debt. On the other side, private equity virtually never finances 100% of a project because it is not the optimal structure for them to receive an acceptable return. It is far better for them to leverage their available equity to enter into multiple deals, use some of the cash flow to service the debt and use the remainder to provide a return on the equity investment. Your company has a policy that each transaction will be structured separately, based on the market, the proforma, and the overall transaction cost. In other words, there is no standard structure. Your company has a significant investment pool available, and often partners with other equity partners in hotel investments. This allows the company to invest in more deals than they otherwise could. Your company also maintains relationships with lenders who have participated in the mortgage financing on other of your companies transactions, either by themselves or as a syndicator of a group of lenders. These relationships allow your company considerable flexibility, and the abitlity to rapidly define a deal structure and then secure the debt and equity investors to close the deal quickly. This ability also allows a greater leverage in negotiating a purchase price because sellers know you can finance and close quickly. You are working for a hotel ownership corporation. Your development and feasibility team has identified a resort hotel in Florida that appears to be a great opportunity. The acquisition team has identified three potential capital structures and has sourced these using entities your company has already done business with in other transactions. Your job is to examine the relative risk, and the return to your company for these three capital structures (stacks). Background As we have already learned, the financing structure used in the purchase of a hotel asset is virtually always some combination of debt and equity. A lender will never finance 100% of an asset - in fact they will rarely finance more than 60% of the asset because the hotel industry is classified as fairly high risk. In the event of a forclosure the lender wants to be assured that they could sell the asset and recover their entire debt. On the other side, private equity virtually never finances 100% of a project because it is not the optimal structure for them to receive an acceptable return. It is far better for them to leverage their available equity to enter into multiple deals, use some of the cash flow to service the debt and use the remainder to provide a return on the equity investment. Your company has a policy that each transaction will be structured separately, based on the market, the proforma, and the overall transaction cost. In other words, there is no standard structure. Your company has a significant investment pool available, and often partners with other equity partners in hotel investments. This allows the company to invest in more deals than they otherwise could. Your company also maintains relationships with lenders who have participated in the mortgage financing on other of your companies transactions, either by themselves or as a syndicator of a group of lenders. These relationships allow your company considerable flexibility, and the abitlity to rapidly define a deal structure and then secure the debt and equity investors to close the deal quickly. This ability also allows a greater leverage in negotiating a purchase price because sellers know you can finance and close quickly. You are working for a hotel ownership corporation. Your development and feasibility team has identified a resort hotel in Florida that appears to be a great opportunity. The acquisition team has identified three potential capital structures and has sourced these using entities your company has already done business with in other transactions. Your job is to examine the relative risk, and the return to your company for these three capital structures (stacks). Background As we have already learned, the financing structure used in the purchase of a hotel asset is virtually always some combination of debt and equity. A lender will never finance 100% of an asset - in fact they will rarely finance more than 60% of the asset because the hotel industry is classified as fairly high risk. In the event of a forclosure the lender wants to be assured that they could sell the asset and recover their entire debt. On the other side, private equity virtually never finances 100% of a project because it is not the optimal structure for them to receive an acceptable return. It is far better for them to leverage their available equity to enter into multiple deals, use some of the cash flow to service the debt and use the remainder to provide a return on the equity investment. Your company has a policy that each transaction will be structured separately, based on the market, the proforma, and the overall transaction cost. In other words, there is no standard structure. Your company has a significant investment pool available, and often partners with other equity partners in hotel investments. This allows the company to invest in more deals than they otherwise could. Your company also maintains relationships with lenders who have participated in the mortgage financing on other of your companies transactions, either by themselves or as a syndicator of a group of lenders. These relationships allow your company considerable flexibility, and the abitlity to rapidly define a deal structure and then secure the debt and equity investors to close the deal quickly. This ability also allows a greater leverage in negotiating a purchase price because sellers know you can finance and close quickly. You are working for a hotel ownership corporation. Your development and feasibility team has identified a resort hotel in Florida that appears to be a great opportunity. The acquisition team has identified three potential capital structures and has sourced these using entities your company has already done business with in other transactions. Your job is to examine the relative risk, and the return to your company for these three capital structures (stacks). Background As we have already learned, the financing structure used in the purchase of a hotel asset is virtually always some combination of debt and equity. A lender will never finance 100% of an asset - in fact they will rarely finance more than 60% of the asset because the hotel industry is classified as fairly high risk. In the event of a forclosure the lender wants to be assured that they could sell the asset and recover their entire debt. On the other side, private equity virtually never finances 100% of a project because it is not the optimal structure for them to receive an acceptable return. It is far better for them to leverage their available equity to enter into multiple deals, use some of the cash flow to service the debt and use the remainder to provide a return on the equity investment. Your company has a policy that each transaction will be structured separately, based on the market, the proforma, and the overall transaction cost. In other words, there is no standard structure. Your company has a significant investment pool available, and often partners with other equity partners in hotel investments. This allows the company to invest in more deals than they otherwise could. Your company also maintains relationships with lenders who have participated in the mortgage financing on other of your companies transactions, either by themselves or as a syndicator of a group of lenders. These relationships allow your company considerable flexibility, and the abitlity to rapidly define a deal structure and then secure the debt and equity investors to close the deal quickly. This ability also allows a greater leverage in negotiating a purchase price because sellers know you can finance and close quickly. You are working for a hotel ownership corporation. Your development and feasibility team has identified a resort hotel in Florida that appears to be a great opportunity. The acquisition team has identified three potential capital structures and has sourced these using entities your company has already done business with in other transactions. Your job is to examine the relative risk, and the return to your company for these three capital structures (stacks). Background As we have already learned, the financing structure used in the purchase of a hotel asset is virtually always some combination of debt and equity. A lender will never finance 100% of an asset - in fact they will rarely finance more than 60% of the asset because the hotel industry is classified as fairly high risk. In the event of a forclosure the lender wants to be assured that they could sell the asset and recover their entire debt. On the other side, private equity virtually never finances 100% of a project because it is not the optimal structure for them to receive an acceptable return. It is far better for them to leverage their available equity to enter into multiple deals, use some of the cash flow to service the debt and use the remainder to provide a return on the equity investment. Your company has a policy that each transaction will be structured separately, based on the market, the proforma, and the overall transaction cost. In other words, there is no standard structure. Your company has a significant investment pool available, and often partners with other equity partners in hotel investments. This allows the company to invest in more deals than they otherwise could. Your company also maintains relationships with lenders who have participated in the mortgage financing on other of your companies transactions, either by themselves or as a syndicator of a group of lenders. These relationships allow your company considerable flexibility, and the abitlity to rapidly define a deal structure and then secure the debt and equity investors to close the deal quickly. This ability also allows a greater leverage in negotiating a purchase price because sellers know you can finance and close quickly. You are working for a hotel ownership corporation. Your development and feasibility team has identified a resort hotel in Florida that appears to be a great opportunity. The acquisition team has identified three potential capital structures and has sourced these using entities your company has already done business with in other transactions. Your job is to examine the relative risk, and the return to your company for these three capital structures (stacks). Background As we have already learned, the financing structure used in the purchase of a hotel asset is virtually always some combination of debt and equity. A lender will never finance 100% of an asset - in fact they will rarely finance more than 60% of the asset because the hotel industry is classified as fairly high risk. In the event of a forclosure the lender wants to be assured that they could sell the asset and recover their entire debt. On the other side, private equity virtually never finances 100% of a project because it is not the optimal structure for them to receive an acceptable return. It is far better for them to leverage their available equity to enter into multiple deals, use some of the cash flow to service the debt and use the remainder to provide a return on the equity investment. Your company has a policy that each transaction will be structured separately, based on the market, the proforma, and the overall transaction cost. In other words, there is no standard structure. Your company has a significant investment pool available, and often partners with other equity partners in hotel investments. This allows the company to invest in more deals than they otherwise could. Your company also maintains relationships with lenders who have participated in the mortgage financing on other of your companies transactions, either by themselves or as a syndicator of a group of lenders. These relationships allow your company considerable flexibility, and the abitlity to rapidly define a deal structure and then secure the debt and equity investors to close the deal quickly. This ability also allows a greater leverage in negotiating a purchase price because sellers know you can finance and close quickly.

Answer rating: 100% (QA)

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