代写Economy Extended-Stay Programmatic Joint Venture代写Processing
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Various
February 4, 2022
Transaction Summary:
Property Type: Approximately 7-12 economy extended-stay hotels
Acquisition Date: March 15, 2022
Purchase Price: $12,000,000
Gross Acq. / Dev. Cost: $95,238,094
Ownership: $ 30,000,000 (90%) ABR
$ 3,333,333 (10%)
Debt Financing: $61,904,761 (65% LTC) first mortgage loans
Various lenders
Expect rates in the 4.25% - 5.25% range Loans will not be crossed
Construction loans will require recourse – provided by Acquisition loans, N/A
Property Description
• Programmatic joint venture with based to develop economy extended-stay hotels (EES Hotels) around the country. JV will also seek to acquire
existing EES Hotels where location, age and economics are deemed accretive to overall value of the venture.
• Would focus on building Extended Stay America (ESA) and WoodSpring Suites (WSS) hotels
• Hotels are expected to be built to stabilized returns on cost of ~ 10% and financed with construction debt at ~ 4.25%-5.25% interest providing 66% of cost.
• Typical room count: 80-125 rooms
• 300sf – 350sf in size
• All rooms feature kitchenettes
• Very minimal staffing –
o 5-7 housekeepers vs. a Towneplace or Home2 which would feature 12-15 housekeepers. Rooms are cleaned less frequently.
o GM and AGM work the front desk instead of also employing front desk staff like a TPS
o No sales department
o WSS has no breakfast offering
o ESA has a complimentary breakfast. All grab and go – no attendants – set-up by front office staff.
• Hotels can be constructed relatively quickly: 12-15 months. A Residence Inn is currently 18-20 months, maybe longer depending on the market
• Guest profile:
o Temporary housing:
Individuals who have sold a house and are waiting to buy a new house;
Relocations are awaiting permanent housing;
Displaced residents – natural disasters
Individuals who can’t qualify to lease an apartment;
o Construction workers, particularly those on long-term projects. Lots of infrastructure workers
o Government workers
o Traveling nurses
o Corporate workers on a per diem
• Business Mix: most of business is either people using the rooms for housing purposes or corporate. Not much leisure business
• Source of business:
o ~ 40% comes from brand reservation systems (Marriott or Hilton res systems would drive 50-60%)
o 2nd largest source is inbound calls from price conscious customers. Many
corporate or government customers are on a per diem and are price conscious to profit off their per diem
o OTAs generate the bulk of the remaining business
• Length of Stay
o Economy Extended Stay in Portfolio:
Average length of stay is ~ 60 days;
39% of guests stay more than 90 days
7% of guests stay less than 7 days
o TownePlace Suites in Portfolio:
19% of guests stay more than 30 days
39% of guests stay 1-4 days
• Franchise costs are less expensive than Marriott / Hilton. All-in 8-9% of revenues vs. typically 12-14% for Marriott and Hilton. Approx. 10% for ESA, less expensive for WSS.
• Gross Operating Profit Margins – typically run in the mid to high 50% range with certain properties, particularly new properties in strong markets, operating at better than 60%
GOP profit margins given the lean operating model
Business Plan
• Initial investment contemplates the forward purchase of an EES Hotel under construction in and capitalization of development costs for three new EES
Hotels currently in planning. This Preliminary Review includes a detailed description of all four investments.
o Since 2018 Brookfield has assembled a portfolio of WSS hotels and has continued to acquire them via their Woodbrook hotels subsidiary. Brookfield is the largest franchisee ofWSS hotels
o In January 2022 Brookfield announced the sale of their entire 111 WSS portfolio to Blackstone and Starwood for $1.5B. The sale is expected to close by end of 1Q22. The transaction purchase price reportedly represents $115,000 / room and a 7.0% cap rate.
• Economy extended-stay hospitality has been the strongest performing hotel sector through the pandemic:
o According to Kalibri Labs, extended-stay hotels, and in-particular what they
referrer to as “Select extended-stay” hotels (which would include lower priced
EES Hotels as compared to higher priced, Upscale extended-stay such as a
Residence Inn), have been the best performing hotels type through the pandemic.
o The outperformance of the extended-stay sector is highlighted in the following
two graphs, the first of which represents extended-stay results in 2020 and 1H21 versus 2019, and delineates such results for extended-stay and broader hospitality market. The second graph repeats this analysis and delineates results for EES
Hotels and Upscale extended-stay hotels (i.e. “Select”) market.
o According to the Highland Group, Q3 2021 occupancy for EES Hotels had
recovered to 2019 levels, at 88%, and during the quarter this segment experienced record setting RevPAR. EES Hotels as a sector are expected to have a higher
RevPAR in 2021 relative to 2019.
o WSS (a Choice franchise) as a brand reported 86% occupancy for 2Q21 and 16% RevPAR growth vs. 2Q19.
o From mid-summer 2020 to December 2020 HVS completed 1,000 appraisals, 141 of which they had appraised from 2017-2019. They noted that of the 141 hotels, the 11 economy hotels (which would include EES Hotels and other economy
brands) had the lowest average value change.
Partner –
• based company formed in 2002 to acquire, develop and manage quick service restaurants and hospitality assets
• Starting in 2002 developed and operated as franchisee 46 and Sold in 2021 for a significant profit.
• Have developed 23 hotels over past 15 years, focused primarily on extended-stay segment.
• Vertically integrated. Separate development, construction, and management divisions
• Currently operate 1,350 hotel rooms across eight states
• Currently have 75+ equity partners in their transactions and seek to consolidate
• Principals:
o – President
Founder
Began career in 2002 with BS –
o – President Construction and Development
Joined firm in 2014
Oversees development and construction divisions BS –
Risks and Mitigants
• ABR experience with EES Hotel segment
o Risk
Limited experience with this segment.
o Mitigant
Considerable positive experience with both housing and hospitality. Sector occupies a segment between the two.
• Barriers to entry
o Risk
Low barriers to entry given the construction type and typical commodity locations of the hotels given the customers are price conscious.
o Mitigant
Entering the sector early in the post-pandemic hospitality recovery.
Investment Highlights
• High cash-on-cash returns – high return on cost, averaging 9.1%, for the initial
development transactions, attractive financing options, plus potential to layer in select
acquisitions allows for attractive cash distributions during a 3–5-year hold period despite a primarily development-based strategy.
• Strong fundamentals – economy extended-stay hotels have been the best performing hospitality asset class through the pandemic. With the continued lack of affordable
housing options and the potential for major infrastructure spending over the coming
years, the sector should have continued strong demand fundamentals. The asset type occupies a space in the market between housing and hospitality. And, the hospitality element is substantially less operationally intensive, a critical feature considering labor shortages and inflationary conditions.
• Capital market tailwinds – institutional ownership within the asset class has been
increasing in recent years with BX/SWC purchasing ESA for $6B and Brookfield selling Blackstone and SWC their entire 111 WSS portfolio for $1.5B.