Just bought another flag hotel!

[Nichole Stohler]

Investment Info:

Other commercial investment investment.

Contributors:
Mike Stohler

Another hotel!! 64 room upper-midscale branded hotel near several economic drivers in the metro Phoenix area. This project included syndication through a 506c offering for accredited investors.

What made you interested in investing in this type of deal?

We transitioned into hotels a few years ago and really enjoy this business. We were looking to add another hotel to our portfolio and offered this project through syndication.

How did you find this deal and how did you negotiate it?

Through our network of folks in the hotel industry. Negotiations included calculating costs of capital improvements and leveraging revenue actuals which were down due to partial construction and flag transition.

How did you finance this deal?

SBA Loan and Private Investment

[Mike Stohler]

Nathan,

Great Question and I can definitely share the details.   We have invested in a lot of Multi-family and we have typically stayed local to Phoenix.   We moved into  hotels a few years ago for some of these reasons:

1.  Purchase Cap-Rates are currently much better in hotels in our metro area.

Our purchase Cap-Rate was 10.78% for an A-class Flagged hotel.  Apartments are almost half that rate and would most likely be a C+ property.

2.  I like the ability to adjust my rates on a daily basis given economic indicators and the season.  Apartments are limited to lease terms and market rents. 

3. I'm renting my rooms every night not monthly which gives us a lot more gross revenue. Let's take a 64 room hotel vs apartment complex. The hotel grosses $1.5 million on a 75% occupancy rate. Apartments at $850 a month would gross a little over $490,000 on the same occupancy. Some will argue that are expenses are a lot higher which they are but our NOI is still over $600,000 which is more than the apartments gross. The apartment complex would have to maintain 100% occupancy every month of every year to gross what our NOI is.

4.  Favorable loan programs.  I have a 10-year, 5.30% rate amortized over 25 years using an SBA 504 loan.

5.  Our break-even point is a lot lower than apartments

These are a few reasons why we like hotels.

  Hotels are very different.  They are businesses that require experience.