By: Scott L. Podvin, Managing Director
         The Crest at Waterford Lakes, LLC
         spodvin@post.harvard.edu
      ...
LEGAL & DUE DILIGENCE ISSUES TO
WATCH OUT FOR WHEN ACQUIRING
      DISTRESSED HOTELS

AGENDA:
  • Evaluating Exactly Why T...
KINGS OF THE UNIVERSE
• Blackstone’s top-of-the-market acquisition, in
  which it invested $6bn of equity, made it the
  w...
KINGS OF THE UNIVERSE CONT.
      Marriott International, whose brands        Accor, best known as the operator of
•
     ...
MEASURES OF HOTEL VITALITY
• OCCUPANCY
• AVERAGE DAILY
  RATE (ADR)
• REVENUE PER
  AVAILABLE ROOM
  (REVPAR)

Scott L. Po...
HOTEL MARKET
Three sources of hotel demand:
1. Tourism (individuals, groups, and
   families);
2. Corporate (individuals a...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
HOTEL OCCUPANCIES
    US hotel occupancy down
    12.6 % in the last week of
    Feb.
    2008 RevPAR decreased
•
    0.8%...
HOLD ONTO YOUR SEAT BELTS:
   ITS GONNA GET ROUGH
    In 2009:
•
    7.8% decrease in Occupancy
•
    6.4% drop in ADR
•
 ...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
How About So. Florida Hotels?
• Miami-Dade, south         • Broward tax revenues fell
  Florida’s largest lodging   droppe...
TRANSACTION VOLUME
               FALLS OFF A CLIFF
• Market for luxury hotels has
  evaporated
• “Luxury is just getting
...
REASONS FOR DECREASING
     TRANSACTION VOLUME
1.Decreasing

  liquidity

2.Deteriorating

  demand

  fundamentals
Scott ...
SOME CITIES WILL ENJOY 2010
•                                                    •
    Atlanta                            ...
HOSPITALITY IS SYMBIOTIC WITH
   COMMERCIAL REAL ESTATE
• Employment and Office Demand
    – Hotels proximate to office bu...
STATISTICAL CORRELATION
• Ratio of office sf to
  total number of
  hotel rooms
   – Ratio of hotel rooms per
     1,000 s...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
THE SECRET SAUCE
• Each job creates
  demand for 235 sf of
  office space
• 16.6 sf of office space
  creates demand for 1...
Relationship Between Office
           and Hotel Demand
• Ratio of occupied hotel
  room to occupied office
  space ranges...
UNEMPLOYMENT RATE




Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu...
COMMERCIAL PROPERTY MARKET
      IS UNDER SIEGE

• Vacancies are expected to reach
  14.7% this quarter
• Vacancies will a...
OFFICE VACANCY PRIMARY MARKETS
Market               1992 Vacancy   2002 Vacancy   3Q 2008 Vacancy

New York -Mid-Town   15...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
FORECAST FOR DEFAULTS
          AND BANKRUPTCIES
• Debt defaults increase at double-digit rate next 24
  months
• 160 to 1...
Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009
spodvin@post.harvard.edu
http://www.linkedin.c...
BAD SITUATION GETS WORSE FOR HOTELS

• A rapidly growing number of hotels — including many
  high-end and luxury propertie...
GAMBLING ON CASINO
                      OPERATORS
Hit by the twin blows of a recession and tight credit markets, many
   ...
LUXURY HOTELS
           TAKE A DIP INTO THE RED
• Ritz-Carlton, Lake Las Vegas spent much of 2008 in
  Chapter 11 – recen...
VALUING HOTELS & RESORTS
Three valuation techniques:
1. Income approach,
2. Cost approach, and
3. Sales-comparison approac...
HOTEL VALUATIONS
For the income approach, we create at least
  three models:
(a) A band of investment with 3-year net inco...
DUE DILIGENCE
1. Research the Property
    A. Title Encumbrances
    B. Land use restrictions
    C. Zoning
2. Understand ...
Due diligence cont-
3. Environmental Impact Study
   A. Phase I
   B. Phase II
4. Examine Infrastructure Needs
   A.    Se...
DUE DILIGENCE CONT.-
5. Investigate and Identify Community Stakeholders
6. Meet with Government Officials
7. Review Land U...
CONTRACT ISSUES
• Option Agreement or Sale and Purchase
  Agreement for the Site
• Contribution of the Site by the Land
  ...
Hotel Management & Sub-
         Management Agreements
Choosing the Brand
     – What is the market for the condominiums, ...
Branded Management Contracts vs.
             Franchise/Management
Branded Management Contracts                        FRA...
TURNAROUND
 POTENTIAL
1. If poorly managed
   or maintained, we
   can timely
   implement capital
   improvement plan
   ...
RISK vs. REWARD
Big hotel operators:
1. IHG,
2. Hilton,
3. Marriott, and,
4. Accor,
   Reduce risk by selling
   hotels in...
ASSET LIGHT VS. ASSET RIGHT
• Starwood pursues a slightly nuanced asset disposal
  strategy to its peers.
• While others h...
GREEN SHOOTS GROWING
          FOR HOTEL DEALS
• The hotel sector should benefit from its position as
  a favored investme...
NOW IS THE TIME
                       TO RAISE A FUND




Scott L. Podvin:
IMN’s Distressed Hotel Symposium -- April 30 –...
FOUR POCKETS OF DEMAND
1.Opportunity Funds that have been established to
  buy real estate equity
2.Newer Opp. Funds that ...
PODVIN DEVELOPMENT GROUP
              RAISING $$100MM FUND TO
   PURCHASE REAL ESTATE, DISTRESSED/OPPORTUNISTIC
         ...
INVESTORS
1. Institutional Investors



                                     Investors
2. Pension funds
                  ...
WHAT WE DO
                                              • We identify real
                                              ...
CORE BUSINESS FOCUS
1. Identification;
2. Acquisition;
3. Ownership; and
4. Operation of multi-family residential
   and h...
TYPES OF INVESTMENT
WE MAKE THE FOLLOWING TYPES OF
                                              DEAL SIZE
INVESTMENTS:
  ...
Investment Objectives
(1)acquire neglected multi-family residential
   &/or hospitality properties; and
(2) increase profi...
INVESTMENT APPROACH
    Conduct thorough and comprehensive research
•
    Perform ongoing review
•
    Commit to strong on...
OUR PHILOSOPHY
• DO THE RIGHT THING: Our core ethos is to quot;do the
  right thing” -- responsible investment.
• ALIGNING...
OUR STRATEGY
• Attract and retain
  investors;
• Continuous
  research and
  innovation;
• Deliver stable
  platform for g...
REAL ESTATE
    FUNDS – THE
    ANATOMY OF THE
    DEAL




Scott L. Podvin:
IMN’s Distressed Hotel Symposium --
April 30 ...
What to Look for in a
                    REAL ESTATE FUND
    Experience
•
    Skills
•
    Contacts
•
    Practical prob...
THE CHEMISTRY COUNTS
        Alignment of Interests:
    FUND & REAL ESTATE COMPANY
•   Fund Objectives
•   Fund Life
•   ...
ABOUT US
• PDG is an independently managed private equity real estate
  investment advisory company focused on real estate...
• Scott L. Podvin, Managing Director of
  The Crest at Waterford Lakes, LLC
• www.TheCrestLife.com
• spodvin@post.harvard....
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Distressed Hotel Conference 8april09

  1. 1. By: Scott L. Podvin, Managing Director The Crest at Waterford Lakes, LLC spodvin@post.harvard.edu www.TheCrestLife.com http://www.linkedin.com/in/sp0dvin Tel: (305) 793-5762; Fax: (305) 665-3971 Scott L. Podvin: IMN’s Distressed Hotel Symposium – April 30- May 1, 2009
  2. 2. LEGAL & DUE DILIGENCE ISSUES TO WATCH OUT FOR WHEN ACQUIRING DISTRESSED HOTELS AGENDA: • Evaluating Exactly Why The Project Failed • Valuation Issues • Possible Title Complexities • Contract Negotiation • Assessing Local Markets • Issues With Incomplete Projects • Brand & Management Company Considerations • Evaluating Real Cash Flow The Project Generates Session Chair: Joel Hiser, President HORWATH HOSPITALITY & LEISURE, LLC Panel Participants: Scott L. Podvin, Managing Director THE CREST AT WATERFORD LAKES, LLC Patrick Deming, Managing Director EASTDIL SECURED Howard Shapiro, President HOWARD SHAPIRO & CO. Marv Pearlstein, Partner MANATT David Neff, Partner PERKINS COIE
  3. 3. KINGS OF THE UNIVERSE • Blackstone’s top-of-the-market acquisition, in which it invested $6bn of equity, made it the world’s biggest hotels group. Its Hilton brands alone comprise more than 3,000 hotels and 500,000 rooms. • Intercontinental Hotel Group, whose brands include InterContinental, Crowne Plaza and Holiday Inn, owns more than 4,000 hotels. • Starwood, whose brands include St. Regis, Sheraton, Westin, W Hotels and Aloft, is one of the world's largest hotel operators with 897 properties, with around 275,000 rooms. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  4. 4. KINGS OF THE UNIVERSE CONT. Marriott International, whose brands Accor, best known as the operator of • cheap and mid-range hotels, such include: as: Marriott Hotels & Resorts, • Ibis, • JW Marriott Hotels & Resorts, Renaissance • • Mercure and Hotels & Resorts, Courtyard by Marriott, Residence Inn by Marriott, • Novotel a • Fairfield Inn by Marriott, and whose upscale hotels include: • Marriott Conference Centers, Sofitel, TownePlace Suites by Marriott, SpringHill • have a network of 182 hotels. Suites by Marriott, Marriott Vacation Club, • The Ritz-Carlton Hotel Company, • The Ritz-Carlton Club, • Marriott ExecuStay, • Marriott Executive Apartments, • Grand Residences by Marriott, • has more than 3,100 lodging properties in the U.S. and 65 other countries and territories. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu
  5. 5. MEASURES OF HOTEL VITALITY • OCCUPANCY • AVERAGE DAILY RATE (ADR) • REVENUE PER AVAILABLE ROOM (REVPAR) Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  6. 6. HOTEL MARKET Three sources of hotel demand: 1. Tourism (individuals, groups, and families); 2. Corporate (individuals and groups); and 3. Government-related demand, including contractors Remember, 70-80% of a hotel’s performance is systematically linked to the local economy. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  7. 7. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  8. 8. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  9. 9. HOTEL OCCUPANCIES US hotel occupancy down 12.6 % in the last week of Feb. 2008 RevPAR decreased • 0.8% due to a 3.7% decrease in occupancy, the highest annual decrease in occupancy since 2001. Demand is forecast to • decrease by 2.0% Supply is projected to • increase 1.6%, Occupancy will reduce • further to 58.6%, the lowest since 1971, according to a PWC forecast Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  10. 10. HOLD ONTO YOUR SEAT BELTS: ITS GONNA GET ROUGH In 2009: • 7.8% decrease in Occupancy • 6.4% drop in ADR • 13.7% fall off in RevPAR • 30.1% decline in profits • This level of decline has not been • seen since the 1930s. March 2009 Hotel Horizons Report by PKF Hospitality Research Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  11. 11. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  12. 12. How About So. Florida Hotels? • Miami-Dade, south • Broward tax revenues fell Florida’s largest lodging dropped 20% in Feb and market, tax revenues from 16% in Jan hotel guests plunged 24% • Room rates dropped 12% in Feb and 17% in Jan. to $144/nt • Room rates dropped twice • Occupancy dropped to as quickly in Feb. as in 83% January –down 14% to $180/nt • Occupancy dropped 11% to 73% Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  13. 13. TRANSACTION VOLUME FALLS OFF A CLIFF • Market for luxury hotels has evaporated • “Luxury is just getting killed,” said Bobby Bowers, SVP at STR Global. • Not a single top-tier hotel traded during the last quarter of 2008, said Patrick Ford, president of Lodging Econometrics Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  14. 14. REASONS FOR DECREASING TRANSACTION VOLUME 1.Decreasing liquidity 2.Deteriorating demand fundamentals Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  15. 15. SOME CITIES WILL ENJOY 2010 • • Atlanta Dallas • • Austin Nashville • • Detroit Columbus • • Oahu Albuquerque • • Fort Worth Houston* • • Raleigh Anaheim • • Chicago Minneapolis Lenders, investors, and operators should continue to be cautious because all but the hotels in Houston are forecast to continue to report occupancy their long-term average. March 2009 Hotel Horizons Report Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  16. 16. HOSPITALITY IS SYMBIOTIC WITH COMMERCIAL REAL ESTATE • Employment and Office Demand – Hotels proximate to office buildings tend to capture corporate travelers – Density of office space in a market helps determine highest and best use of land for hotels – Last decade, ave. 318 sf of office space absorbed for every new job created, but in last 5 yrs, ave. decreased to 235 sf for every new job. – BUT….. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  17. 17. STATISTICAL CORRELATION • Ratio of office sf to total number of hotel rooms – Ratio of hotel rooms per 1,000 sf of net rentable office space ranged from only 0.21 to 0.23, w/ a mean of 0.22 • BUT….. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  18. 18. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  19. 19. THE SECRET SAUCE • Each job creates demand for 235 sf of office space • 16.6 sf of office space creates demand for 1 occupied room night • Thus, each new job generates demand for 14 room nights per annum Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  20. 20. Relationship Between Office and Hotel Demand • Ratio of occupied hotel room to occupied office space ranges from only 0.058 to 0.064, with an average of 0.060. • Inverse of this ratio shows that for every 16.6sf of occupied office space, there was one hotel room occupied. • The range of the occupied RBA to occupied room nights was from 15.5 square feet to 17.2 square feet. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  21. 21. UNEMPLOYMENT RATE Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  22. 22. COMMERCIAL PROPERTY MARKET IS UNDER SIEGE • Vacancies are expected to reach 14.7% this quarter • Vacancies will approach 18% by year end according to the National Association of Realtors. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  23. 23. OFFICE VACANCY PRIMARY MARKETS Market 1992 Vacancy 2002 Vacancy 3Q 2008 Vacancy New York -Mid-Town 15.0% 8.8% 6.2% New York -Downtown 22.6% 12.1% 6.9% San Francisco 12.4% 20.9% 10.0% Seattle-Tacoma 16.4% 15.4% 10.1% Los Angeles 20.5% 15.3% 10.3% Miami 17.2% 14.3% 10.7% Washington, D.C. 15.0% 11.2% 11.0% Philadelphia 17.9% 12.5% 11.7% Boston 17.8% 18.4% 11.8% Chicago -Downtown 21.4% 15.0% 12.2% Houston 22.0% 15.6% 12.5% Atlanta 18.8% 18.7% 16.2% Phoenix 20.9% 20.3% 17.3% Chicago -Suburbs 20.8% 21.8% 19.8% Dallas-Ft. Worth 25.1% 23.2% 21.0% US Average 19.8% 16.0% 13.7%
  24. 24. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  25. 25. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  26. 26. FORECAST FOR DEFAULTS AND BANKRUPTCIES • Debt defaults increase at double-digit rate next 24 months • 160 to 190 defaults in 2009 • B/n 120 and 140 in 2010 • Typically, 2 out of 3 to 3 out of 4 defaults end in bankruptcies within 3 months. • Thus, we are looking at: – 150 bankruptcies in 2009 and – 100 in 2010. according to a bi-annual study in November 2008 by Bain Corporate Renewal Group. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  27. 27. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  28. 28. BAD SITUATION GETS WORSE FOR HOTELS • A rapidly growing number of hotels — including many high-end and luxury properties — are forced into bankruptcy or foreclosure in coming months, Martha C. White reported in The New York Times. • Jim Butler, a hotel industry lawyer, said those who manage distressed hotel loans have told him that their workloads have jumped tenfold in recent months. • “Things seem to be accelerating,” Mr. Butler said, and predicted that before the recession is over, the number of hotels in bankruptcy or foreclosure could rise above the 2,000 or so reached in the industry’s last big downturn in the 1990s. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu
  29. 29. GAMBLING ON CASINO OPERATORS Hit by the twin blows of a recession and tight credit markets, many gaming companies have been squeezed hard. 1. Tropicana Entertainment filed for bankruptcy 2. STATION CASINOS -- Colony owns a 75% stake in Station Casinos Inc. while Crown owns a 19.6% interest in Fontainebleau Equity Holdings LLC. Both have Las Vegas properties 3. Trump Entertainment Resorts, of which Mr. Trump owns 28 per cent, filed for Chapter 11 protection at a court in New Jersey after bondholders who control the debt-laden casino operator rejected Mr Trump’s attempt to take the company private. Mr Trump has resigned from the board. 4. CITY CENTER--needs a combined $800 million contribution from both partners before it can access a $1.8 billion credit facility from lenders needed to finish construction. Australian billionaire and gambling magnate James Packer is weighing a stake in City Center, the troubled $8.6 billion Las Vegas development owned by MGM Mirage and Dubai World Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  30. 30. LUXURY HOTELS TAKE A DIP INTO THE RED • Ritz-Carlton, Lake Las Vegas spent much of 2008 in Chapter 11 – recently sold to 3rd owner a year. • In Scottsdale, Ariz., 2 upscale properties entered foreclosure in Jan. after being open for ≤ 6 months • Greenbrier Resort in W.V. filed for Chapter 11 last month after losing $35 million in 2008. • In Chicago, plans for a 200-room Shangri-La hotel were scrapped. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  31. 31. VALUING HOTELS & RESORTS Three valuation techniques: 1. Income approach, 2. Cost approach, and 3. Sales-comparison approach. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  32. 32. HOTEL VALUATIONS For the income approach, we create at least three models: (a) A band of investment with 3-year net income build-up and an equity dividend; (b) Mortgage equity with a 10-year income projection and an equity yield; and (c) Overall rate derived from sales of comparable hotels. *10-year discounted cash-flow is the preferred technique, although in this environment cash flow forecasts are not that reliable. *Relying on sales of comparable hotels should be avoided since the true motivations of buyers and sellers are difficult to ascertain. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  33. 33. DUE DILIGENCE 1. Research the Property A. Title Encumbrances B. Land use restrictions C. Zoning 2. Understand the Physical Characteristics of the Land A. No substitute for site visits B. Topography C. Surface water runoff Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  34. 34. Due diligence cont- 3. Environmental Impact Study A. Phase I B. Phase II 4. Examine Infrastructure Needs A. Sewage Disposal B. Water Supply C. Transportation – traffic studies D. Other utilities Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  35. 35. DUE DILIGENCE CONT.- 5. Investigate and Identify Community Stakeholders 6. Meet with Government Officials 7. Review Land Use Regulations a. State and Local Comprehensive Plans b. Zoning Ordinances c. Development Ordinances d. Subdivision/Binding Site Plan Ordinances e. Impact Fee Ordinances f. Other governmental regulations 8. Entitlements and Permits 9. Additional land for expansion… Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  36. 36. CONTRACT ISSUES • Option Agreement or Sale and Purchase Agreement for the Site • Contribution of the Site by the Land Owner • PRICE • REPRESENTATIONS • INDEMNITEES • CLOSING AGENT • TITLE AGENT Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  37. 37. Hotel Management & Sub- Management Agreements Choosing the Brand – What is the market for the condominiums, fractional interests, condo-hotel units, yacht club membership interests, and dockominiums to be sold? – Which brand will fit best into the marketing plan? – Which brand would find the asset and its location most desirable? – How easy is the brand to deal with? – Which brand can be expected to deliver the highest RevPAR, given the character of the asset and its location? – Which brand can be expected to deliver the most for the money? Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  38. 38. Branded Management Contracts vs. Franchise/Management Branded Management Contracts FRANCHISE AGREEMENTS 1. FEES 1. FEES 2. TERM 2. CONTRIBUTIONS 3. TERMINATION ON SALE 3. BUDGET CONTROLS 4. PERFORMANCE CLAUSE 4. PERFORMANCE CLAUSE 5. TERMINATION W/O 5. TERMINATION ON SALE CAUSE 6. CORPORATE MARKETING 6. CORP MARKETING 7. TERRITORY PROTECTION 7. TERRITORY PROTECTION 8. DISPUTE RESOLUTION 8. VENUE 9. OWNER APPROVAL OF KEY 9. PROPERTY EMPLOYEES IMPROVEMENT PLAN Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  39. 39. TURNAROUND POTENTIAL 1. If poorly managed or maintained, we can timely implement capital improvement plan to push the ADRs. 2. If none, value may be land value or less. 3. The availability of financing is key to evaluating a distressed hotel. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  40. 40. RISK vs. REWARD Big hotel operators: 1. IHG, 2. Hilton, 3. Marriott, and, 4. Accor, Reduce risk by selling hotels in exchange for long-term management agreements and/or franchise agreements, plus a small equity kicker (i.e. share of revenues). Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  41. 41. ASSET LIGHT VS. ASSET RIGHT • Starwood pursues a slightly nuanced asset disposal strategy to its peers. • While others have sold hotels and retained management contracts and franchising of its brands - a strategy known as asset light - Starwood has adopted an “asset right” approach, holding onto a slightly higher percentage of hotel assets. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  42. 42. GREEN SHOOTS GROWING FOR HOTEL DEALS • The hotel sector should benefit from its position as a favored investment for less-leveraged buyers, such as sovereign wealth funds, high net worth private investors and real estate investment trusts, says Arthur de Haast, global chief executive of Jones Lang LaSalle Hotels. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  43. 43. NOW IS THE TIME TO RAISE A FUND Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  44. 44. FOUR POCKETS OF DEMAND 1.Opportunity Funds that have been established to buy real estate equity 2.Newer Opp. Funds that have been created as dedicated debt investors 3.Private Equity looking at real estate debt 4.Real Estate Companies buy back their own debt or debt of others Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  45. 45. PODVIN DEVELOPMENT GROUP RAISING $$100MM FUND TO PURCHASE REAL ESTATE, DISTRESSED/OPPORTUNISTIC ASSETS THIS FUND SHALL FOCUS ON PURCHASING THE FOLLOWING TYPES OF ASSETS/DEBT: Strategically located developments, located in the centre of a city, being large-scale and multi-phase developments typically consisting City-Core of residential, hospitality, office, retail, entertainment and cultural Development properties with a blend of historic restoration and modern Projects architecture. Large-scale multi-family residential communities in secondary and tertiary markets located on main and main where we can implement a Integrated capital improvement program to push the rents. We will be prepared to Residential purchase asset/debt on an all cash basis, but once the community has Development Projects been stabilized, we shall lever it or dispose of the asset, triggering a repayment event. There will be tremendous opportunities in busted condos and conversions Broken Condos & while value add plays will also be easy to find. Likewise, there will be many Conversions or Partially projects with incomplete construction that we will be able to pick up on the Constructed cheap, complete construction and reposition the asset to create a vibrant Communities working, walkable (with bike paths and all), sustainable and living community for working class people. WE ARE NOW RAISING A Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – $100,000,000 FUND TO May 1, 2009 PURCHASE DISTRESSED spodvin@post.harvard.edu
  46. 46. INVESTORS 1. Institutional Investors Investors 2. Pension funds Our Preferred 3. Insurance companies Shares pay 4. Endowments cumulative 5. Investment Banks preferential cash 6. Commercial Banks distributions at an 7. Fund of funds annual rate of 9%. 8. Hedge Funds 9. High net worth individuals 10. Family offices 11. Sovereign wealth funds Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  47. 47. WHAT WE DO • We identify real estate opportunities that generate superior risk- adjusted returns while ensuring capital preservation. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  48. 48. CORE BUSINESS FOCUS 1. Identification; 2. Acquisition; 3. Ownership; and 4. Operation of multi-family residential and hospitality real estate properties. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  49. 49. TYPES OF INVESTMENT WE MAKE THE FOLLOWING TYPES OF DEAL SIZE INVESTMENTS: • The ideal deal size will • single assets and start at US$2-25MM, portfolios; with a minimum equity • Distressed mutli-family investment of US$5 and hotel operating million. companies • development or • We have capacity for redevelopment projects; large transactions as a • real estate operating result of co-investment platforms; and and partnerships with our broad institutional • structured loans and partnerships. client base. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  50. 50. Investment Objectives (1)acquire neglected multi-family residential &/or hospitality properties; and (2) increase profitability thru: (a) providing superior property management, (b) improving appearance & environment; (c) implementing renovation strategies; and, (d) cross-selling ancillary services Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  51. 51. INVESTMENT APPROACH Conduct thorough and comprehensive research • Perform ongoing review • Commit to strong on-the-ground presence • Add value by applying focused leasing & expense • reduction strategy Undertake development or redevelopment plans • Create a tailored plan for each investment • Identify key milestones and profit drivers to • achieve the targeted result Capital and financial structuring • Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  52. 52. OUR PHILOSOPHY • DO THE RIGHT THING: Our core ethos is to quot;do the right thing” -- responsible investment. • ALIGNING INTERESTS: To deliver results, we strategically structure the organization and employment compensation plans. • PARTNERING: Working together (within our business and with clients & service providers), we achieve far more than on our own. • DELIVERING INVESTMENT EXCELLENCE: delivering investment excellence lies at the heart of building client confidence. Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  53. 53. OUR STRATEGY • Attract and retain investors; • Continuous research and innovation; • Deliver stable platform for growth; Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  54. 54. REAL ESTATE FUNDS – THE ANATOMY OF THE DEAL Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  55. 55. What to Look for in a REAL ESTATE FUND Experience • Skills • Contacts • Practical problem solving • Reputation • Team • Capacity • $$ Balance Sheet $$ • Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  56. 56. THE CHEMISTRY COUNTS Alignment of Interests: FUND & REAL ESTATE COMPANY • Fund Objectives • Fund Life • Leverage and Financing • Guarantees • Management Style and Control • Tax Considerations • Dealing with Unexpected Issues Scott L. Podvin: IMN’s Distressed Hotel Symposium -- April 30 – May 1, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  57. 57. ABOUT US • PDG is an independently managed private equity real estate investment advisory company focused on real estate investment in the U.S., Europe and Asia. • Our managed investments include development and redevelopment projects, joint-ventures and real estate operating companies in the multifamily apartments, retail, industrial, and hotel sectors. • We combine local knowledge of our real estate professionals with broad global perspectives to develop our strategies and identify investment opportunities. • Our team of real estate professionals come from diverse backgrounds, with the full range of skills required to invest in and manage real estate and advise real estate funds. Our specialists apply their skills to ensure that we drive every one of our investments to perform at its optimum. • PDG is independent of any broader financial services group. We can invest funds on behalf of a number of different organizations, including pension funds, insurance companies, government entities and financial institutions, as well as charities and endowments.
  58. 58. • Scott L. Podvin, Managing Director of The Crest at Waterford Lakes, LLC • www.TheCrestLife.com • spodvin@post.harvard.edu • Cell: (305) 793-5762 • Fax: (305) 665-3971
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