Case Studies in New Development Finance. 

Participants were particularly intrigued with the first panel led by Jack Westergom, Managing Director of a firm specializing in asset management and project management. Using case studies based on several new development projects that Jack is currently getting financed and built, the panel told delegates how creativity and structure could make the critical difference. "Who's Active Now?," Westergom's panel, included Richard Bosworth, BCL Hospitality Advisors; Frank Anderson, Westdeutsche Landesbank; Tim Stodder, Corus Bank; Jerry Earnest, GMAC Commercial Mortgage; and John Greisen, Miller & Schroeder. The panel was virtually unanimous that there were ways to creatively enhance project underwriting to ensure success, such as getting support from and sharing the risk with the hotel operator, making the operator a "risk partner" in the project and various guarantees of completion.

Enhancements to Make the Deal. 

Those creative touches to ensure success can take the form of credit enhancements for the last 10% of a construction loan, letters of credit to be drawn upon if existing financing cannot keep pace with cost overruns, debt coverage shortfall guarantees during the term of the construction loan and subordination of operator base and incentive fees to cover shortfalls, performance guarantees based upon a percentage of total project costs and substantial equity participation. Additional enhancements available to potential developers include city subsidies for off-site improvements, direct city participation or some form of future city property tax relief. 

Mixed Use Can Be an Advantage. 

Hotel components, as part of urban mixed-use projects, play a key role in many developers' projects. Obtaining financing for the project as a whole, as opposed to each component separately, greatly enhances a project's ability to secure financing. Mixed-use projects allow the developer to subordinate income from other components, i.e., parking, retail or commercial space. Requiring performance bonds from other project component operators will go a long way towards easing lender hesitation in hotel development projects. 

Based on Westergom's participation in a number of mixed-use hotel projects, he summarized neatly, "While signing a full recourse loan may have been the end all of hotel financing in the last millennium, new millennium financing requires a good concept, a good market, creative enhancements and an aggressive pursuit of capital sources."