By Catherine Holmes
27 May 2009
JMBM's insights from
Meet the Money® 2009
Public - Private Hotel Development Financing - What kinds of public-
private hotel projects are underway now and what kinds of public financing
are available now to build hotels.
JMBM's Catherine Holmes moderated a panel of diverse experts in the
field of public-private financing. Here are their insightful comments into
this growing area of hotel finance.
What kinds of hotel projects
are you working on now that involve public financing or incentives?
"We are a consulting firm that specializes in local government public
works projects. Lately, we have worked on several mixed use projects that
include hotels and are being developed with one or more types of public
financing or incentive programs. For example, we are working on a project
in Orange County where the local redevelopment agency is buying 17 acres
of land and building a parking structure that will be adjacent to a privately
owned complex of offices, residential condos and retail. We helped the
investors do an analysis of what the publicly owned parking structure would
do to increase the returns to the private investors to a level that made
it feasible for them to build. We are working on another project, a water-park
themed resort in the San Diego area, that is a joint venture between Marriott
and Nickelodeon, that will make use of various incentives offered by the
local government." / David Taussig David Taussig & Associates |
"In Goldman Sachs' Public Sector Financing Group that I head, we are
working on several major convention center hotel projects owned by municipalities
or counties. Local governments have been supporting airport or convention
hotels for over a decade now, as a way to bring new business to their communities
when they can't find a private developer. Cities that have already built
publicly owned hotels include Houston, Denver, Myrtle Beach, and Austin.
We are working now with the City of Dallas on their new convention center
hotel, and with the cities of Washington D.C. and Nashville. There is a
good amount of liquidity in the markets now for municipal bonds, as long
as the projections for the projects can support cash flow to repay the
bonds." Jeff Scruggs Managing Director Goldman Sachs & Co |
"In my role as Vice Chair of the Los Angeles Industrial Development
Authority, I work with business owners of all kinds looking for help with
development of projects in Los Angeles, particularly in our "empowerment
zone" where we are actively encouraging development of new businesses.
We would definitely consider a hotel developer seeking help to build a
hotel in Los Angeles. I am also the Vice President of Development for The
Related Companies of California, and we are working closely with the City
of Los Angeles on the Grand Avenue project, a $3 billion mixed use project
in the center of downtown Los Angeles that will include up to 2600 residential
units, a hotel, a 16-acre public park, and entertainment, restaurant and
retail venues." Beatrice Hsu Member, Board of Directors Los Angeles
Industrial Development Authority |
"My firm, Garfield-Traub, is a turnkey developer of public facilities
of all kinds for local governments. We are actively developing or bidding
on eight different hotel projects that will be owned by cities, including
Portland, Tucson, Albuquerque, San Juan Puerto Rico, and we are finalists
on projects in Virginia Beach and Nashville for their convention center
hotels. Our firm was the first to develop a city owned hotel, the Sheraton
Convention Center Hotel at Overland Park, Kansas. We know how to develop
community support for a project, and how to help a city find sources to
pay off their investment in a hotel." Ray Garfield Principal Garfield
Traub Developments LLC |
"My firm, Red-Horse Financial Group, is one of the leading financial
advisors to American Indian Tribes seeking to develop resort, hotel and
gaming facilities on Indian land. We work with Tribes all over the country,
and we are seeing an increase in the demand for development on Indian land.
Tribal gaming is showing good cash flow as more people stay closer to home.
Right now, I have 17 clients with good cash flow and EBITDA from their
existing gaming facilities, and they are looking to expand by building
hotels. We are working to help them find development partners, and we hope
to use some of the funds set aside for Tribal government works projects
in the stimulus bill to help with these projects. Valerie Red-Horse
President Red-Horse Financial Group, Inc |
What kinds of public financing
and incentives are available now for local governments and hotel developers
seeking to find alternative sources of financing now that private financing
has become so hard to find?"
"In the past, Indian Tribes have not been able to use tax exempt financing
to build hotels on Indian land, because hotels were not considered to be
public purpose developments. With the new stimulus bill, however, hotels
are specifically authorized projects that can be financed with the new
Build America Bonds and Tribal Bonds. We are looking for private developers
who want to participate in building hotels on Indian lands, where we can
bring tax-exempt financing in as part of the total cost of the development,
and the private developers and other investors can partner with the tribes
to bring the rest of the financing. We think that there is an opportunity
now for private developers, investors and hotel brands to team up with
tribes to build projects that may not have been feasible without tax exempt
financing." Valerie Red-Horse |
"Garfield Traub has successfully concluded over $3.5 billion of debt
and equity financing for both privately and publicly owned hospitality
properties. We've done several projects with Jeff Scruggs and his firm,
and other investment banking firms that specialize in municipal finance.
Our Overland Park Sheraton was one of the first tax-exempt hotel financings
in the nation, and we have done several of those since then. We've also
done public-private joint ventures, such as the City of Lubbock, Texas
hotel and conference center, where the hotel is privately owned, but the
city will own the adjacent conference center and parking facility. The
city's part of the project will be funded with bonds that will be paid
with hotel occupancy and real estate taxes, and the city will sell the
conference center to the hotel owner when the bonds have been paid off.
For the San Juan, Puerto Rico project we are working on, we are using a
combination of private equity, federal tax credits, and first mortgage
debt that is credit enhanced by a private lender letter of credit and the
Tourism Development Fund, a subsidiary of the Government Development Bank
of Puerto Rico. Often times, it takes a combination of different financing
to raise enough funds to build the kind of projects that cities want, with
lots of meeting and event space, ballrooms, kitchens, all of which is expensive."
Ray Garfield |
"The new stimulus bill has opened up a wide range of opportunities
for tax exempt and tax credit bonds, but so far, the Build America Bonds
are available only for AA rated debt, and those have to be issued before
December 31st, 2010. For our Goldman Sachs Public Sector Financing Group,
the key is whether we can find investors willing to buy the bonds we are
selling for our municipal clients. When we look at municipally owned hotel
projects, our first question is always whether the projections can show
sufficient debt coverage to make the bond investors comfortable with the
project. Cities can help by providing credit enhancement, tax incentives
and other financial assistance. We are always happy to talk to cities about
how we can help them find a way to issue tax exempt or tax credit bonds
to finance their hotel projects." Jeff Scruggs |
"The Los Angeles Industrial Development Authority offers incentives
in the form of bonds to businesses located in the City of Los Angeles.
Our key goals in issuing bonds are job creation, job retention and economic
revitalization. We offer industrial development bonds, empowerment zone
bonds, and revitalization tax exempt bonds, each of which has different
requirements and features. Our website provides a lot of information for
hotel developers in Los Angeles who might be interested in finding out
if they qualify for these bonds." Beatrice Hsu |
At my firm, we analyze a wide variety of financing options provided
by local, state and federal governments, including the following:
Local Government Programs:
� Community Facilities District or Assessment District
� Redevelopment or Infrastructure Financing District
� Transient Occupancy Taxes
� Parking Revenues
� Sewer and Water Utility Payments
� Utility Users' Taxes
� Community Development Block Grants
� Southern Cal Edison Rule 20 Funding
� Fee Waivers and Credits
State Government Programs:
� Surface Transportation Program ("STP")
� Transportation Enhancement ("TE") Program
� State Proposition 1B Transportation Program
� Infrastructure State Revolving Fund
� Clean Water State Revolving Fund
� Drinking Water State Revolving Fund
� State Energy Program
� State Energy Efficiency and Conservation Grants
Federal Programs:
� Build America Bonds (Tax Credit and Direct Payment)
� Recovery Zone Economic Development Bonds
� Recovery Zone Facility Bonds
� New Clean Renewable Energy Bonds
� Qualified Energy Conservation Bonds
� Transportation Formula and Discretionary Grants
� Federal Discretionary Grants and Loans
David Taussig
|
We want to thank our panelists for providing us this insightful view
into opportunities available now for public-private financing of hotel
projects throughout the United States.
Catherine
DeBono Holmes is a partner in JMBM's Corporate Department and a senior
member of JMBM's Global Hospitality Group®. Cathy assists hotel clients
with hotel management and franchise agreements, purchase and sale transactions,
and condo hotel regime structuring. She has taken hotel owners through
complex RFP processes involving all the major hotel brands. She has significant
expertise in condo hotels and advises clients in the specific business
and legal aspects of condo hotel regime structuring and documentation,
including CC&Rs, HOA docs, unit management agreements, shared facilities
agreements, rental management agreement programs and securities compliance
matters (structuring, documentation and training). For more information,
please contact Cathy Holmes at 310.201.3553 or [email protected]. |