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RockBridge Capital, Which Specializes in Loans to Hotel Developers,
Has Money to Lend When the Opportunity is Right
By Mike Pramik, The Columbus Dispatch, OhioMcClatchy-Tribune Regional News

Jan. 3, 2008 - Borrowing money is difficult for developers these days, but one Columbus specialty lender has been fighting through the climate.

RockBridge Capital, which specializes in loans to hotel developers, said it has money to lend when the opportunity is right.

The company recently closed a $160 million investment fund, its fourth since breaking off from Banc One Capital Markets nearly 10 years ago. RockBridge, which has its headquarters at Easton, is always on the lookout for hotel investors with a solid foundation, President James Merkel said.

Yet RockBridge could have a more difficult time than usual investing during the recession, Merkel said.

"This year will be a very difficult year for the hotel space, but it creates a lot of opportunities," Merkel said. "A lot of people came in and made investments and ultimately overpaid for assets and created an exuberance in the marketplace. And those players are out.

"Now is the time to manage expenses and absorb tough times for another 12 to 18 months."

RockBridge's roots go back to 1992, when it was the real-estate investment group of Banc One Capital Markets led by Ron Callentine. Banc One spun off the group in 1999 during its acquisition of First Chicago NBD. Callentine became RockBridge's chief executive, and he and Merkel were joined by others from the bank, including current RockBridge Chief Financial Officer Steve Denz and general counsel Ken Krebs.

"It was the natural thing to do," Merkel said. "We were one investment arm, and we knew the investments well."

Since then, RockBridge has been an active hotel investor, providing financing for 300 hotel projects in 42 states.

Rockbridge also owns 33 hotels, including the Hampton Inn & Suites at Easton, its only central Ohio property.

"They've grown tremendously," said hotel analyst Eric Belfrage of CB Richard Ellis Hotel Group. "They are very quickly getting involved in ownership and operations and just kind of doing deals."

RockBridge focuses on what it calls three- or four-star properties in the limited- and full-service categories. They include brands such as Marriott, Westin, Crowne Plaza, Sheraton, Hyatt and Hilton.

"I don't know that there's going to be a huge fallout in those quality assets," Belfrage said.

While it was part of Banc One, the division managed four funds of $125 million each.

Since then, it has created five funds, four of which invest in hotel development. The funds have totaled $510 million, although Merkel said he hopes to raise an additional $40 million in the RockBridge Hospitality Fund IV. The fifth RockBridge fund is called Bridge Point Hospitality, which invests in hotel operating companies.

Most of the players in RockBridge's funds are institutional investors, including life insurance companies, universities and foundations.

In addition to new hotels, it also loans money for renovations and repositioning of hotels.

One of its clients, Jim Korroch of Wichita, Kan., said RockBridge's expertise is unique for lenders.

"The part that clearly stands out ... is they understand our business," Korroch said. "They absolutely understand the hotel industry. We can ask them 'What are you guys seeing?'

"It's an added value, really, that you just don't get from a traditional banker."

RockBridge worked with Korroch to rehab an old warehouse and add a 128-room Courtyard by Marriott in Wichita's historic downtown district.

Korroch said RockBridge's expertise extends beyond risk assessment to site selection and hotel operating expenses.

"They understand that a hotel has to bring in a certain amount of dollars per occupied room, or how much income should pay for breakfast, or housekeeping or front-desk labor," Korroch said.


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