A person who has annual income of $200,000 or more individually (or $300,000 or more combined with a spouse) in each of the prior two years and reasonably expects the same for the current year. Another way to qualify as an accredited investor is to have a net worth equal to or greater than $1,000,000 USD, either alone or together with a spouse (excluding the equity of your primary residence).
The process of purchasing an asset such as land or a existing hotel.
A loan that has a floating interest rate that changes based on an cost-of-funds index. This is simply a fancy way to tell borrowers that their interest rate is not fixed and is subject to go up or down throughout the course of the loan. Whenever a real estate investor has a floating interest rate or adjustable rate mortgage, they immediately look to see if their loan documents also provide for a floor & roof to enforce a minimum and maximum interest rate throughout the life of the loan.
Average Daily Rate is a metric used to gauge the average rental income per room. You get this number by: total room revenue ÷ # of total rooms = ADR. Sometimes rooms are rented at different rates so ADR is a helpful tool to look at the average strength of room rate.
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The legal right to use the open space above a designated area of land. In modern day Chicago and other metropolitan areas, skyscrapers often have to acquire these air rights to be able to build past a certain height. But history would suggest that the air above your land and the minerals below the soil also belongs to the owner. This was engrained long ago with latin legal scripture, "Cuius est solum, eius est usque ad coelom et ad inferos". Essentially proving that legal systems from many corners of the World and even generations ago, property law system seemed to believe that a landowner shall be entitled to all of the soil below their land to hell, and all of the air above their land to heaven. Please consult a lawyer to understand how zoning rights and political systems have put serious restrictions and regulations on legal air rights.
Alternative lodging refers to lodging products outside of conventional hotels and motels, including private accommodations through HomeAway and Airbnb.
Amortized loans are loans where there is an option to make regular payments towards both the interest as well as the principal over the term of the loan.
The annual percentage rate measures the total cost of borrowing money, including interest and other fees. Lenders must properly disclose the APR information to borrowers as required by the Truth in Lending Act. Real estate investors consider APR synonymous with their "interest rate".
An Area of Protection (AOP) is a predetermined geographic area of exclusivity during a defined period of time, in which a franchisor promises to a new franchisee to protect and prevent future competition or market dilution by similar flags within the same brand family.
An appraisal is when a designated 3rd party is responsible and so-called "certified" to estimate the financial value of something. This commonly occurs in real estate and hotel investments, where the financial value of property and/or business is used to determine whether or not an individual or hotel business qualifies for a loan. Experienced real estate investors and hoteliers know that appraisers are not always 100% accurate. An appraisal study is often subject to human error. It's almost impossible for an appraisal firm and its staff to comprehensively know every market as well as say a local resident, business owner, or real estate investor knows it. Also worth pointing out, is most appraisers aren't engineers or business owners. Therefore they lack the necessary training or practical experience to properly analyze construction blueprints, civil engineering reports, and/or profit and loss statements. Most real estate owners, investors, and lenders are treating the appraisal like a formality but they don't exclusively rely on it.
Combining two or more lots into one larger lot. This is typically done as part of a replatting or subdividing act. A strategic assembly of various contiguous lots can often increase value.
Describes a hotel company that has created a specific style or certain standards and protocols for affiliated lodging facilities. Many hotel brands franchise their hotel product to investors, developers, and owners. Many brands feature a robust lineup of sub-brands or different hotel flags that cater to a specific niche clientele or market segment.
One who acts as a middleman for a fee or commission. It's an opportunistic trade and exists for almost everything you need in real estate business and life. CBRE, ReMax, Expedia, and AirBnB, Lending Tree, E-Trade, etc. EquityRoots tries to eliminate the high brokerage fees commonly associated with real estate transactions and investments because our business believes in eliminating brokers and commissions, so more of our money ends up in the asset and working for us to make a profit.
Ordinances or rules that outline construction and design standards for buildings to ensure safety of occupants and surroundings.
The amount of profit achieved by selling an asset. An accountant should properly explain that a capital gain is calculated on the difference between your running cost basis and disposition price. Capital gains are taxed at a slightly lesser rate than ordinary income like your salary. Typically, in the real estate world- a long term capital gain occurs on a security like a note or real estate held for more than 12 months and sale occurs. On the other hand it would be called a short term capital gain if the same security were sold while being held for less than 12 months.
This is the technology and legal process of raising money.
A capital stack refers to the combination of equity and debt financing sources that entirely fund either a purchase or development of a hotel project. The two major ingredients in a capital stack are equity and debt.
This is a metric shown as a percentage rate which narrowly looks at the annual cashflow of your investment divided by your equity investment. This is a poor metric to rely on for real estate investments because it doesn't shed light on appreciation or equity built over time by paying down your mortgage. Cash on cash doesn't taking into consideration how much principal equity you build in real estate over time, it merely looks at how much cash remains in our hands after all operating and capital expenses are paid.
The total amount of liquid money being derived from a business.
Central Business Districts are the commercial and business centers of cities, villages, or municipalities.
The Coldwell Banker Richard Ellis Group (CBRE) provides real estate services, mainly brokerage of commercial property, valuation services, and real-estate management services.
A centralized system, typically a 800 number and/or a website designed by each brand in the hospitality industry to help customers book reservations at branded, franchised, or affiliated hotels in each respective Brand family. Hilton has it's own central reservation system that can help travelers find lodging accommodations at any one of its fourteen flags. Central reservation systems are very helpful to travelers that identify with a specific brand loyalty or are interested in earning loyalty points by staying at brand affiliated properties.
A permit issued by the local government that allows the property to be used for habitation. Hotels and Motels must acquire such a certificate before they are allowed to operate.
Different classes of flags within a brand, based on quality, amenities, and average room rates. These can range from Luxury Chains such as the Ritz-Carlton to limited-service chains such as Fairfield Inn. Luxury properties tend to be at the top of the chain scale, while economy flags tend to be at the bottom of a chain scale.
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The highest ranked category for prestigious office buildings and/or other commercial assets like hotels. The ranking category often takes building quality and location into consideration. Assets located on Class-A sites tend to earn above average rents for the area. Buildings have high quality standard finishes, state of the art technology, exceptional accessibility and a strong market presence.
A Commercial Mortgage Backed Security (CMBS) is a type of loan or debt instrument specifically for commercial real estate and typically offers non-recourse protection to the borrower. Pre-existing stabilized hotels are the ideal candidates for CMBS lenders.
Something of value (typically non-cash) that is offered to ensure that a lender receives something of value should a borrower default on their loan. For example, if a borrower takes on a loan from the bank to pay off a house, the bank can secure the house as its own in the scenario that the lender is unable to make his or her loan payments.
Also known as a comp-set, is a group of similar hotels and competitors for a hotel. Defining a comp-set helps hotel companies focus their marketing strategy and influences what products they develop.
Sometimes, government establishes that defined regions be set aside for specific use, such as setting aside a few blocks of land for residential purposes. These regions cannot be used for anything else. However, if the government believes that a development that does not fit the zoning requirements is needed for the common good, a conditional-use permit can be granted. In a residential zone, the local government may grant a conditional-use permit to a hospital, even though the hospital is not classified as a residential building.
A shorter-term loan that is made in installments or monthly draws during the construction phases of a development. Typically construction loan carries a floating interest rate and the length of the term depends on how large the construction project is. Typically for select service hotels between 100 - 180 rooms, a construction lender will typically extend 24 months. A borrower only pays interest as they draw on the total amount of money to complete the project. The interest usually accumulates and is capitalized into the permanent loan, immediately following construction. So technically, a hotel developer doesn't make interest payments out of pocket during construction, but they'll end up adding all of the interest into the permanent loan.
Conventional loans are not required to have any government insurance or guarantees on behalf of the borrower. These are typically relationship driven loans that you can find at local community banks and credit unions. Conventional loans require slightly more equity down payments than government endorsed loans like SBA or USDA, but conventional loans are more straightforward with less administrative paperwork. Additionally, conventional loans typically do not have any prepayment penalties because the lender wants to build a relationship and is looking forward to recycle the capital with the developer. SBA loans on the other hand enforce a very strict 10-year prepayment penalty.
This is a form of capital fundraising for a project by means of online capital formation, or people investing online. Crowdfunding is the concept of using newer technology and newer legislation to raise capital. EquityRoots uses crowdfunding technology as a finance mechanism to help investors gain access to institutional grade hotel investments that would otherwise be out of reach for typical investors. Crowdfunding is democratizing the investment marketplace, providing high quality investment opportunities to the masses. Additionally, crowdfunding becomes a very efficient investment model especially when the crowdfunding platform doesn't pay brokers, dealers, or other middlemen to source investors.
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Debt is a promise to repay money, also known as a loan. It is often evidenced by a legal instrument like a promissory note, mortgage, and/or a loan agreement. Debt can be unsecured or secured against real property and/or some other form of collateral. Debt is usually repaid with interest under specific timeline to a lender. Hotel Investors can increase their return on investment (ROI) by leveraging debt in their capital stack. Debt financing is commonly used to acquire existing assets and to help finance ground up new development.
These are clauses that can be written into a lease that limit future uses of a given property, also known as restrictive covenants.
The practice of postponing repairs or improvements on a hotel property to save costs.
These are the primary influencers for hotel demand. Tourist destination, business facilities, office space, convention centers, shopping malls, assisted living centers, residential population, and expressway infrastructure are all examples of demand drivers for hotels. A hotel desires to be within close proximity to demand drivers. The more demand drivers that are present in a market, there is a reasonable expectation of more lodging demand, or higher occupancy levels.
Reductions in the value of an asset, reflected on a tax return to offset taxable gains. In particular, a reduction in the value a hotel has as it ages over time.
The person or group responsible for constructing or renovating a new hotel. A developer organizes the transaction all the way from site control, negotiating with hotel brands, negotiating with government, negotiating with lenders, and hires a general contractor to finish construction. A developer often invests their own capital but also takes on investors to help fund their projects.
The act of selling an asset or security through direct sale or some other conveyance.
A single structure or connecting structures that house two or more hotel brands or different flags that share common public space. For example, a single tower which offers a Hilton Garden Inn and a Home2Suites, which are both Hilton products. It's not unusual to see mixing and matching of flags within the same and among the "big 3" different brand families. Dual-branded hotels offer significant advantages from a development and operating cost perspective to the ownership.
To learn more about Dual Brand Hotels, please click here
The legal right to utilize the land of another for a specified reason. For example, a real estate investor or hotel developer may request a neighboring office building to allow guests from the hotel to utilize its entryway from the nearest road, so that future guest may also enjoy ingress and egress rights to the hotel property. Real estate investors can pay for easements, request them for free, or sometimes ask a State Court to recognize an easement by prescription or necessity. Every State has the right to dictate and regulate their own individual property laws including the rules and elements of easements.
An immigrant investor program created by Congress in 1990 that allows non-U.S. Citizens to gain lawful permanent residence for themselves and their immediate unmarried family members under the age of 21. Under this program, immigrant investors can gain a EB-5 Visa as long as they make a capital investment of $500,000 in a Targeted Employment Area or an investment of $1,000,000 in a new commercial enterprise in the U.S. The enterprise must also create or preserve 10 full-time jobs for qualifying U.S. work within two years. New construction hotels are an ideal candidate for EB-5 investments because they typically meet all of the qualifying criteria for job creation.
To learn more about EB5 - Immigrant Investor Program, please click here
This is a phrase to describe the addition of jobs, investment, and tax revenue to a particular area. Many local governments have a special department for economic development that utilizes a number of economic development tools to assist developers to help create jobs and tax revenues within their city, village, or municipality.
The legal right that allows a local government to take and fairly pay for property to be used for public use. In these cases, court and legal action determine whether or not the property is acceptable for public use, and determines the amount of payment deemed appropriate to the property's owner. Some real estate investors and developers argue that eminent domain unfairly hurts a free a market economy, but the Supreme Court has recognized local government's need to maximize and find the highest and best use of their territory for the overall public benefit. Legal professionals differ in opinion, but many question whether local governments have the professional skill set necessary to override free market activity and some feel that the term "public use" and "public benefit" is loosely interpreted.
A building that reaches beyond its legal boundaries, extending into areas where it doesn't have legal permission or purpose. This can also be a section of a building, including fencing, that extends into another lot illegally. Many real estate investors and hotel developers will often pay special attention in working with their civil engineers and surveyors on designing their projects. These are the professionals that can help developers make sure their project doesn't have an encroachment issue later.
Anything that can potentially decrease the value of an asset. This can be something financial, such as an unfavorable lien on the asset, or physical, such as a restriction on what the land can be used for. Easements, mortgages, and entitlements all become encumbrances on real property. However, as you pay off your loan, the lender removes its lien.
In hotel development and real estate investment terms, equity usually represents ownership. Equity can come from just one source or it can be fractionalized into shares, units, or membership so that several people can participate in the ownership (See Equity Interest). Equity typically serves as the down payment towards a loan. Equity paired with debt creates a full capital stack. Or in other words, Equity + Debt = Total Purchase Price or Total Development Cost of your hotel project. When hotel owners say they build up additional equity over time, they are referring to appreciation on the value of their property over time and because they've been paying down the principal balance of their mortgage loan.
This is a form of ownership. Some examples of it are stock in a corporation and/or membership interest in a company. The amount of ownership a person owns in a hotel investment is by measuring some form of the investors' equity interest.
A sum of all equity and appreciation repaid to the investor at time of an asset's disposition plus all profits distributed during the hold period, divided by the total equity invested. Equity Multiple = (Equity Repaid at Disposition + Total Profits During Operating Years) / Total Equity Invested.
A process to legally remove a person from inhabiting or possessing real property. This is something that landlords, multifamily, and apartment investors have to deal with. Every State sets and regulates its own laws on this subject, but a majority of States recognize some form of protection for inhabitants that occupy any dwelling for more than 30 consecutive days, sometimes they are deemed a resident and the property owner needs to follow a lengthy and costly eviction process. Because most hotel guest do not stay for more than 30 nights, this rarely becomes a problem for hotel investors. Extended-Stay hotels on the other hand have special considerations and policies for various regions.
Extended Stay hotels are typically designed for "all-suite" longer term guest. Sometimes corporate training seminars and conferences can last for more than 7 days so hotel guest that want to feel more at home with larger rooms or separate bedrooms, kitchenettes, and lounge areas may prefer an "all suite" extended stay property. Some examples of extended stay brands are Residence Inn by Marriott, Home2 by Hilton, Staybridge, Hyatt House.
Exterior elevations are drawings that portray what each side of a developed asset looks like from the outside, and includes key information that the architect and builders use during construction, including masonry specifications and building height and dimensions for windows, doors, and balconies. These drawings may include decoration and color schemes, but most basic exterior elevations include general structural information about the building.
The food and beverage (F&B) department of a hotel that oversees catering, restaurant, lobby bar, and room service in a full service hotel. Many select-service hotels also have a F&B component to their business.
Federal National Mortgage Association is a publicly traded government sponsored enterprise which was created shortly after the Great Depression in 1930's. It's purpose, to this day, is to expand the secondary markets to absorb securitized and bundled mortgage backed securities which allows lenders to essentially sell their real estate loans and come back into the marketplace and make more loans. Fannie Mae is only relevant to home buyers and residential developers, and has zero bearing on hotel developers and investors.
Many firms use their industry knowledge and other reports to form a basic outlook on the current and future health of a market. They often use this data to make an educated guess on the feasibility of a proposed development.
Federal Housing Administration was another byproduct of the Great Depression in 1930's. FHA was created to essentially regulate the interest rate and amortization terms of residential mortgages and then go on to offer insurance on mortgage notes. Insured mortgage notes are easier to sell in secondary markets. All of these tools aimed to get housing money moving again, in sustainable manner.
Fee Simple Absolute is the strongest form of freehold estate interest in which the holder owns the real property unconditionally, and this interest will pass to his or her heirs. It's the strongest form of ownership interest. If you're going to buy land for your next hotel site, you are actually purchasing a fee simple absolute property interest.
Furniture, fixtures and equipment. FF&E is an acronym that simply refers to property without a permanent connection to the real estate component of the hotel. Hotel owners and Brands typically replace FF&E every 7-10 years to keep the hotel in fresh condition. Although the value of these items typically depreciate quickly over time, they are also important costs to keep in mind as hoteliers think about either valuing a hotel or operating one.
Fix and Flip describes a specific investment strategy in which investors purchase real property. They typically remodel, renovate, or make improvements to the property, and later resell the property to earn a profit. With minimal barriers to entry, almost anybody can attempt to fix-and-flip a home in the residential space.
Personal property that has been converted to real property because it is permanently attached to the asset. For example, a hotel owner that installs LED lighting cans in all of the rooms and hallways, typically are not allowed to take those lamp fixtures with him upon sale of the hotel, since they are considered a part of the hotel as fixtures.
A specific hotel product that operates under and is affiliated with a larger hotel brand network. For example, IHG is a brand, whereas Holiday Inn and Holiday Inn Express are flags under IHG. Parent hotel brand companies create several flags to satisfy a wide variety of specific consumer niche markets.
Floor plans are marked up layouts of a development that architects, developers, and general contractors utilize to help plan before and during construction of a new development. These floor plans often include dimensions, entryways, and easements that are to be created on the property.
This is an investor domiciled outside of the United States. These investors are often looking for commercial real-estate investments within the United States. Federal legislation such as the Immigrant investor Program, or the EB-5 program allows the investor to obtain permanent residency within the United States if their investment qualifies and completes the procedural process. For more information, please see our Foreign Investor page.
To learn more about EB5 - Immigrant Investor Program, please click here
A developer must submit an application along with their resume and a proposed location of which they have site control over in order to receive a franchise approval letter.
A person or group that is given a license for a specified term to do business under a company franchisor's trademark and name. For example, individual hotel properties can pay Marriott a franchise fee in order to use Marriott's name and central reservation system to drive increased demand to their hotel property. As part of the license agreement, franchisees must adhere to operating benchmarks and specifications according to the franchisor, such as interior design, FFE, and food and beverage standards.
The franchisor is the brand company that grants licensing rights to individuals or groups to use their business model and products. For example, the Hilton company franchises different brands to franchisees, including Home2 Suites by Hilton, and the Hilton Garden Inn.
Full Service luxury hotels are large boxes that often have multiple conference rooms, restaurants, and sometimes convention space. Examples of full service luxury hotels are Ritz Carlton, Renaissance, Westin, Intercontinental.
The period of time that an investor has possession of ownership or an investment (such as a hotel). A hotel developer and deal sponsor can stipulate the minimum holding period for an investment and install restrictions on the transferability or ability for investors to resell their investment.
An Illinois House Bill that allows non-accredited investors that live, reside, or domiciled in Illinois to invest in a hotel investment opportunity by means of general solicitation, as long as that project or real estate is also located in Illinois.
HVS Global Hospitality Services offers valuation, consulting and market research specifically for the worldwide hotel industry.
Many real estate investments and hotel investments conduct a series of upgrades or renovations, also known as "improvements" which can often enhance the value of the property it is on. Examples of property improvements include installing a new concrete driveway or replacing all of the cabinetry in your extended stay hotel. Hence, many brands create a "property improvement plan" upon sale so that real estate investors can finance the cost of improvements into the cost of their acquisition.
A hotel, motel, or lodging facility that is independent of brand requirements. Independent properties do not have any affiliation with branded hotel chains. Independent hotels do not have to pay royalty fees to a franchisor, but they also miss out on central reservation systems, and brand loyalty programs.
This is the investor segment that often leads the way. Equityroots.com has the largest membership of active developers, operators, general managers, director of sales, and owners. These investors are very familiar with hotel investing because they currently are, or previously have been in the hotel industry. Many of them have built tremendous portfolios of their own, and are now just looking to diversify their positions. Veteran hotel owners have used equityroots.com to diversify their portfolio by brand, region, and type.
The rate at which money is earned or borrowed. Interest rate can be earned on the funds in an investor's checking account. Likewise, interest rate ultimately decides how much interest an investor must pay to borrow capital from the bank.
The process of investing in a project with multiple investors who all reside within the same state. Many States got tired of waiting for federal legislation which would allow unaccredited investor participation, hence enacting their own State legislation which would allow unaccredited investors to participate when the asset and investors are both domiciled in the same State. Not all States enacted intrastate crowdfunding laws, but many States such as Illinois, Texas, Georgia, Florida, and Alabama have enacted some form of intrastate participation.
This is a person or entity trying to invest money into a hotel deal. These people come from all walks of life and want a real-estate backed investment. Their intent is to exchange money for a debt or equity position in one or many of our hotel offerings. Securities laws often dictate who can participate. Please see our FAQ section to determine investor eligibility.
This is a metric shown as a percentage rate that makes the net present value of all cashflows from the investment over the time period equal to zero. IRR attempts to take time into consideration understanding that doubling your money in two years is different than doubling your money in five years.
This is the person or entity trying to raise capital.
From a real estate investor's perspective, land refers to a certain legal description of property that offers some surface area on the earth, and infinitely upwards and downwards. This allows for the creation of not only land rights, but air rights far above the physical ground, as well as underground subterranean mineral rights below the soil.
Opposite from freehold estate, a leasehold estate is a property interest in which the holder is entitled to merely rent or lease the real property from the fee simple owner.
Leverage is a measure of how much debt is utilized in the capital stack. For example, if a project costs $12 million and the developer borrows $9 million to finish it, one can say the project is 75% leveraged. Higher leverage often increased yield on equity investments, but introduces more risk to the investment.
A lien is a legal encumbrance on real property and is often recorded at the County's recorder of deeds office to give notice to the whole world. Banks, credit unions, and lender often take a 1st position lien on the real property when giving you a construction or acquisition loan. The purpose of the lien is to mark their security interest in the property as a lender and to put the world on notice of their interest and the rights that come along with it.
These are business organizations and legal entities that protect individual owners from liability. LLC business entities can have one or more members. Traditionally it offers pass through taxation allowing the business to pass its profits and losses directly to members without double taxation. Equityroots frequently utilizes this form of business entity for its hotel crowdfunding projects and other real estate crowdfunding projects.
Limited service hotels are properties that do not offer restaurant, conference, or banquet facilities. They are designed to be simple and efficient. Limited service hotels typically offer free continental breakfast. As a result of its simplicity and efficiency, these properties are typically the cheapest to develop and maintain. Examples of limited service brands are, Fairfield by Marriott, Holiday Inn Express, Hampton Inn.
In real estate investment world, liquidity often eludes many people. Having a liquid asset means that it is readily available to be cashed in, traded, or exchanged for goods and services. One of the most liquid assets in the world is the United States currency. The American dollar is readily accepted worldwide and doesn't take any lengthy process before it can be accepted as valid payment. Most real estate assets, including hotels are not liquid. The fact is that most real estate and hotel properties can take 90 or more days to sell, therefore it is not immediately liquid. Real estate investments are not very liquid and if anyone is seeking liquidity to cover their life expenses, real estate investments are not right for you at this time.
This is a ratio that displays the amount of the loan given to the value of the real estate that the loan is going towards. For example, a 75% LTV means that a lender is willing to give a loan to help a real estate investor to acquire performing real estate, such as a $10 million hotel, using a $3 million down payment, and $7 million loan.
Reward programs offered by Hotel Brands which allow members/guest to earn points for spending money at a hotel. The more money a guest spends, the more points he or she earns. Larger corporations have company approved budgets for employee travel and expense. While the employers cover the cost, it's actually the traveling employee that earns the reward/loyalty points. Many corporate travelers take the points that they earn through company travel to book leisure trips with their family during vacation time.
This is the date that a security (stocks, bonds, and notes) matures and becomes due. Maturity date often comes up in real estate investments when a bond becomes payable, when a CD account expires, or when a balloon note payment on a loan becomes due.
Mezzanine debt or mezz debt for short is a separate class of debt apart from the primary debt already used to finance a hotel acquisition or new development project. Mezzanine debt is typically used in a temporary position and allows an equity investor to put in less of his or her actual money towards a hotel project. This type of debt typically comes with a significantly higher rate of interest, but can allow investors to earn a higher return on his or her equity.
Mixed-use developments are vertical structures that combine two or more uses. eg.) residential with institutional or ground floor retail use, or residential condos and hotel high-rise with a rooftop bar. Mixed-use buildings are often found in the city and urban areas, and are effective when available land is scarce, and developer is seeking a high-density environment.
A method of construction that allows hotels to be built in chunks (such as rooms or bays) off-site, and then be put together on-site much like legos. This method often saves significant construction time as a result.
To learn more about Modular construction, please click here
A single structure or connecting structures that house two or more residential units. 3-flats, 4-flats, and apartment buildings are all considered to be multi-family assets.
Depending on the location of a planned development, hotel developers may need to file a formal petition with the local jurisdiction to seek zoning approval and conduct improvements on a plot of land, including new construction hotels or significant additions to a pre-existing property. These petitions generally include layouts of what the intended development will look like, along with general timelines for construction and intended completion dates. The petition along with a site plan is used for zoning approval.
A hotel asset that is newly constructed from the ground up. In the hotel industry, a newly constructed hotel is considered a new construction asset, as opposed to one that is acquired from a previous owner. There are several advantages and disadvantages between new construction assets and pre-existing hotel assets. See our blog for further discussion on this subject.
Net operating income includes all of the revenue from a hotel minus all variable and fixed operating expenses including staff salaries and utility costs. The balance left over is known as net operating income. Note that you still need to make debt service payments from this balance, any remaining balance can then be distributed to investors and owners.
As per SEC, FINRA, and IRS, this is a entity or individual investor that has income of less than $200,000 USD in the last two fiscal years and does not have a personal net worth or assets worth more than $1,000,000 USD (excluding his/her primary residence).
Nonrecourse debt prevents the creditor from pursuing borrowers' assets in the event of a default or deficit foreclosure. If a hotel owner uses nonrecourse debt to finance a hotel transaction, but fails to repay the note under the specified terms, the creditor can liquidate the hotel asset, but the creditor has limited recourse in pursuing the borrowers for any deficit or loss. An example of non-recourse notes are Commercial Mortgage Backed Securities (CMBS) loans.
This is a percentage number reflecting how many rooms out of any hotel total rooms are rented.
To learn more about Occupancy Rates, please click here
A legal document that defines how a limited liability company is operated and carried through it's business plan. This document explains how critical business decisions are made, and the process to follow while making them. This documents sets expectations for hotel investors on how their business entity is run.
An individual, firm, or chain which manages and operates the day to day activities of the business.
In real estate, an opportunistic turn around is when a investor identifies a property that is struggling or performing below its comp-set. The investor will often purchase the asset for a favorable price and perform improvements on physical condition of the building, retrain or replace management staff, improve customer service, replace old FF&E, and sometime rebrand the asset as a means to improve business and guest satisfaction.
A legal agreement to keep an offer open for a predetermined amount of time and strike price. For example, a real estate investor or real estate developer still deciding on whether or not to pursue a specific territory for building a hotel, may negotiate for, and purchase a option contract on vacant land. The option contract allows the real estate investor to pay a fee (must be negotiated) in exchange for the exclusive right to buy real estate for a pre-determined price and within a pre-determined time. Options are a security, so many savvy developers can often resell the option to another party if they choose not to pursue the real estate for themselves.
Online Travel Agents allow consumers to book travel services online. Some of the most common OTA's include Expedia and Priceline.
Property Improvement Plans (PIP) are implemented by the Brand franchisor to keep all franchisee properties in compliance with new and ongoing brand standards. A PIP is often implemented at time of ownership change or when a property is rebranded.
PITI Reserve account is a bank account that lenders often require real estate investors, developers, and hotel owners to create for the purposes of keeping enough cash in there to cover principal, interest, taxes, and insurance. Most lenders are simply satisfied with a interest and property tax reserve account, but some some go the extra mile with PITI. Some lenders also require hotel investors to hold a FFE Reserve account on deposit. This ensures that the hotel property has enough funds allocated for a renovation to maintain the bank's collateral several years down the road. The purpose of lenders enforcing PITI Reserves or any type of Reserve account is to minimize their risk of anything affecting their security interest for the loan.
Government and developers often work together toward the creation of these larger areas that combined multiple land purposes. A PUD may consist of residential housing in the same area as retail stores, hotels, and office space. Many real estate investors and developers believe that PUD's and mixed-use developments are sustainable way to build communities.
Property Improvement Plans (PIP) are implemented by the Brand franchisor to keep all franchisee properties in compliance with new and ongoing brand standards. A PIP is often implemented at time of ownership change or when a property is rebranded.
A group of financial assets which can include but not limited to stocks, bonds, mutual funds, notes, real estate, and hotel investments.
A private placement memorandum (PPM) describes a crowdfunding investment opportunity to passive investors. It's a legal instrument that describes the different classes, total number of units, and the offering type being utilized. PPM's should also have adequate and transparent risk disclosures regarding the investment. A PPM is typically followed by a subscription agreement, operating agreement, joinder, and other exhibits such as audited financials depending on the offering type being utilized.
An existing hotel asset is a property that is already open and operating. Pre-existing hotel assets have previously been owned and operated by another hotelier. In the hotel industry, a pre-existing hotel that is acquired by a new owner is an existing asset, as opposed to a newly constructed hotel. There are several advantages and disadvantages between new construction and pre-existing hotel assets.
Areas, regions, destinations, and major downtown city-centers that have a variety of large scale major demand drivers, amenities, and/or trip generators related to travel, commerce, and leisure. For example, downtown Chicago is a primary market due to its tourism sites and industry hub centers, and highrise Class-A office buildings. Some suburbs also serve as primary markets when it has a large enough population size and enough target destinations for business and tourism. Generally, hotel real estate and land is more expensive in primary markets. Generally, hotels in primary markets tend to earn a higher rate and occupancy compared to similar hotels in secondary or tertiary markets.
A financial document, often in Microsoft Excel format prepared by a developer or CPA that draws income and expense projections. This document is similar to a profit and loss statement which provides the basic foundation to calculate net operating income. Some proforma's go the extra step in having additional tabs for debt service assumptions and a breakdown of total development cost. Most lenders will require this document in order to underwrite and approve a loan for new hotel developments. Professional developers often use dynamic versions of their proforma. A dynamic proforma allows the reader to adjust input data causing other data to automatically adjust. For example, if you change the occupancy level on a dynamic proforma, the cost data for payroll, housekeeping, and breakfast costs will automatically adjust to the readers' new assumptions.
The number of goods or services you can buy with a set amount of currency. Hotel developers, hotel owners, hotel builders, and hotel management companies often leverage their purchasing power over multiple hotels to get better prices from their vendors.
The number of goods or services you can buy with a set amount of currency. Hotel developers, hotel owners, hotel builders, and hotel management companies often leverage their purchasing power over multiple hotels to get better prices from their vendors.
A marketing strategy to recreate the image and performance of a hotel by switching it's franchise affiliation to another brand. For example, an investor attempts to convert a Hampton Inn to a Holiday Inn Express. Rebranding is a popular strategy to optimize an older hotel's performance.
Illegally restricting access to loans in targeted areas of a community or to different nationalities. This practice of lending is driven by racism, prejudice, and incompetence- Most bankers and financial institutions do not operate this way today.
Rebranding is the process by which a hotel changes brands or flags, including logos, marketing material, central reservation system, and FFE. This cosmetic change typically is coupled with a change in market strategy in an attempt to recapture market share. This can include new policies and a focus on a new customer base.
The Securities Act of 1933 requires any offer-to-sell-securities to be registered with the SEC or meet an exception. Regulation D provides a few exceptions to this rule, allowing some companies to offer and sell their securities without having to register the securities with the SEC.
Under Rule 506(b), companies are allowed to seek investors from an unlimited number of accredited investors and up to 35 unaccredited investors, provided that general solicitation is not used to attract or secure investors.
Under Rule 506(c), companies are allowed to broadly solicit and generally advertise security offerings , but can still claim those offerings as private so long as all the investors in the offering are all accredited investors, and the company has taken steps to verify that its investors are accredited investors. This may include reviewing tax returns or requesting a professional opinion letter from the investors' attorney/accountant.
Another marketing strategy similar to rebranding where the developer, owner, or hotel investor determines that he or she can reposition the real estate asset into something better. Repositioning an asset can sometimes converting to the highest and best use, or simply performing property renovations and rebranding into another chain scale.
This is the investor segment that represents the masses. These are America's hardest working nurses, engineers, doctors, lawyers, and other professionals looking to grow their wealth through real-estate investments. Most retail investors are too busy in their professional lives to allocate significant time behind their real estate investment, instead they prefer to park their money with industry leaders and seasoned veterans that have long standing and proven track records of building, buying, and selling hotels.
Retired people often invest on equityroots. They want to put their hard earned money to work, using dividends to cover lifestyle expenses and passing on their principal as wealth through estate planning. The internal Revenue Code and Congress have made special provisions and tax benefits for retirees. One of the preferences afforded to retirement investing is the ability to defer taxable gains as you would find in many individual retirement accounts (IRA). Today's self-directed ira accounts allow investors to invest into commercial real-estate like hotels and recognize all the benefits of a traditional IRA account.
Revenue per available room is a metric that is arrived to by ADR * Occupancy rate. RevPAR is helpful when looking at the big picture.
To learn more about RevPAR, please click here
This is a legal right in which the holder shall get the final right to purchase the property in question for a defined period of time. For example, if you negotiated for and received a 5-year "right of first refusal" on the purchase of Hampton Inn & Suites Time Square New York, this essentially means that the owner must give you the last and final option to purchase the property by matching their best offer from a 3rd party. Be careful not to confuse this with option rights. Having an option contract also includes some form of pre-determined strike price whereas a "right of first refusal" is typically influenced by fair market value and/or whatever someone else is willing to pay for the real estate.
Return on investment (ROI) is expressed as a percentage and is typically used for business investment decisions. ROI is calculated by taking net profit, dividing by principal investment, and then multiplying by 100 to reach a percentage. To look at ROI over time, investors often find it more helpful to look at a metric called equity multiples.
Smaller version of a Primary Market, typically within close proximity of a Primary Market that has its own unique set of demand drivers.
For a lender, having a secured loan means that the loan agreement is evidenced by a lien that is attached and recorded on the real property. The lien creates an encumbrance on the property and gives notice to the entire world. Any future action or transaction on the real estate from that point forward must respect the lien rights, therefore providing security for the loan.
An agency of the United States Government that regulates and enforces laws regarding investments, exchanges, and securities.
Select Service hotels are a hybrid between full service and limited service properties. Select service hotels typically have some conference space, a bistro style food and beverage option, a bar, and many amenities that follow in the footsteps of their full service luxury counterparts, however the overall size of the hotel is scaled down to a more efficient box with less overhead. Courtyard Marriott, Hilton Garden Inn, Holiday Inn, Hyatt Place.
A specific type of individual retirement account (IRA) that allows investors to invest into alternative investments other than traditional stocks, bonds, and mutual funds. Self-directed accounts require some form of direction or control by the investor which is what makes this type of retirement account so appealing. Many roth ira's and traditional ira's can be converted into a self-directed ira account with the help of a qualified custodian.
To learn more about Self Directed IRA, please click here
Site control is an expression of having a certain legal interest in a subject property that allows the developer to represent or control the site in a certain manner to their benefit. A developer may have site control over a property that they do not yet own. There are temporary and permanent forms of having site control. The most popular form of site control is by entering into a purchase and sale agreement that defines a specified time for due-diligence. A developer often gains site control during the due-diligence period of a pending sale.
Soft branding refers to a hotel that relies primarily on its own independent identity for its brand, but is also affiliated with a larger hotel group for marketing and membership benefits.
This is the person backing and leading the deal. Many times, the issuer and sponsor are the same person or entity. All sponsors on equityroots.com are expected to have at least twenty years experience in building, buying, operating, and selling hotel assets without any prior record of default or bankruptcy. The sponsor behind the deal is just as important as the deal itself in the eyes of online investors.
The period of time that it takes for a new hotel to achieve a stabilized average daily rate and occupancy levels after first opening in the market. Hotels generally have lower rates and vacancy when they first open, before gradually achieving stabilization. A typical stabilization period for new construction hotels is 18 months. Typical stabilization period for conversion and repositioning deals is 12 months.
Smith Travel Research creates a custom or market report widely used by the hotel industry to help make informed decisions about marketing, sales, and management strategies. These reports measure the occupancy and average daily rate of a hotel or a group of hotels, as well changes in supply and demand in the overall market. Developers often order a STR report on the surrounding compset in order to gauge the comparative performance of an existing asset or the viability of a ground up new development hotel.
To purchase and divide land into smaller parcels. These sections can be developed and leveraged independently of each other, and can be developed by the subdivider himself, or by different developers. The opposite of this would be when a real estate investor purchases multiple parcels of land to create a larger assembly.
Similar to air rights, these are legal rights of the fee simple absolute owner. The fee simple owner also owns what's underneath the surface of their land. Distinct individuals can own the subsurface rights, surface rights, and air rights separately- but in most instances these rights are not severed. You will find example of real estate investors and hotel investors buying or selling their air rights in mega urban center city destinations. You will find examples of real estate investors buying or selling their subsurface rights or subterranean rights to mining and oil extraction companies which often excavate resources from underneath the earth's surface. Outside of those instances, most owners keep their subsurface, surface, and air rights intact associated with their real estate.
A basic economic principle that illustrates how fluctuating prices, quantities of goods, and demand from consumers can all influence each other. For example, holding all other things equal, a hotel in an area where many people want to visit can charge a higher average daily room rate than if that hotel were developed in an area that people don't usually visit. The demand for hotel rooms drives the price of hotel rooms up. Eg.) If Peoria, Illinois had 5,000 hotel rooms, perhaps they would sell for an average daily rate of $100. But if Downtown Chicago only had 5,000 hotel rooms, prices might increase to $2000/night because there aren't enough rooms to keep up with demand. Albeit supply and demand is a simple economic principle, real estate investors and hotel investors spend a lot of time scrutinizing this subject for each of their investments.
Distinct from air rights (above ground) and subsurface rights (below ground), surface rights refers to real estate limited to the surface of an area on earth and the improvements and structures on it.
A region in the U.S. that is selected and identified due to their need for increased employment opportunities. Investors seeking eligibility for the EB-5 Visa only have to invest $500,000 in Targeted Employment Areas (as opposed to the mandatory $1,000,000 minimum investment).
To protect an investment or account from being taxed until a later date. This tool is often used to allow full investments to increase in value over time while remaining tax free until withdrawal at a later date. Common methods of tax deferral are the use of 1031-exchange upon disposition, or individual retirement accounts (IRA's).
This is a fee associated with the cost of raising capital on equityroots.com. Technology cost often cover digital marketing cost that comes with crowdfunding.
One who uses or inhabits an asset or property through a instrument such as a commercial lease. Office building owners often have many tenants from several distinct companies who pay the owners a regular monthly rent in exchange for use of the facility.
Tertiary markets typically border Secondary Markets and even farther away from Primary Markets. They have less demand drivers and amenities compared to Primary and Secondary markets. Additionally, tertiary markets can be defined as rural highway locations where you've probably seen a cluster of economy hotels/motels.
The Big 3 refers to the three biggest and most successful hotel chains. Marriott, IHG, Hilton.
A type of real estate that allows multiple owners to own the same asset. Timeshares often allow each owner to have the rights to inhabit and use the property at different times throughout the year. Many older and savvy real estate investors avoid timeshares because they don't like management fees and reduced profits, if any.
A document that contains all details about title or deed to property. It includes relevant information about terms, conditions, encumbrances, restrictions, and exclusions from the title policy which is basically a insurance policy provided by a title company to insure the title after closing. (not to be confused with landowners general liability insurance policy). The title company is merely insuring the title as it is described in the title commitment and will defend the owner from any and all claims contrary to the title commitment document.
A type of real estate asset that involves multiple residential sections that have shared walls. A real estate investor and real estate developer often like town houses because it provides more residential units on less land, which often becomes more profitable than selling or building single family home subdivisions.
An object installed by a tenant that is attached to the actual property. This can be removed by the tenant before the lease expires. For example, if a restaurant signs a lease to operate in an owner's building, the kitchen equipment (including fryers and oven) are typically installed and attached to the building for operational purposes. Withholding any lease stipulations that require the restaurant to relinquish their equipment to the building's owner after the termination of the lease, the restaurant is allowed to remove and keep the kitchen equipment following the termination of that lease.
Transient Travelers are people who are predominantly on-the-move and seek short (and often urgent) hotel-stays.
In real estate investments, the word Trustee can come up under two different and common scenarios. First, is when a real estate investor is investing into real estate by using funds in his estate planning accounts. For example, many savvy and older investors have organized trust accounts that provide for tax advantages when passing their estate on to their heirs. The goal is to make real estate investments through these separate trust entities. A trust entity has 3 hallmark components, A) Owner B) Beneficiary, C) Trustee. The Trustee's job is to carry out the functions of the Trust as it was designed by the owner. The second scenario where the word Trustee comes up is when real estate investors and developers are considering new development and new construction projects which often require zoning and entitlement actions. These questions can sometimes become political in nature for a local government, therefore they rely on a group of Trustee(s) that are supposed to be a fiduciary to the local jurisdiction and make decisions accordingly.
The process used to determine how much risk a equity participant or lender is willing to accept for a given real estate transaction or hotel project.
This is debt that is not attached to any collateral, and can pose a greater amount of risk to the lender, who cannot hold anything of the borrower as temporary payment in the event of borrower default. The holder of unsecured debt essentially gave a loan to the real estate investor based on their goodwill and reputation. Unsecured debt is generally more expensive to borrow but is available immediately and without much paperwork, for emergency situations. It is very hard for a borrower to receive unsecured debt, but sometimes a developer with the right relationships, connections, long term track record, and good character reputation may have access to unsecured debt.
Value engineering is a process where a real estate developer will gather and conduct meetings with his/her general contractor, civil engineer, architect, structural engineer, and MEP engineer to determine if changes or revisions can be made in the construction drawings prior to and during construction which result in overall cost savings to the owner and investors.
Describes the enhancement or improvements that a company makes to its products, services, or property as part of a new affiliation. In rare cases, value-add can sometimes be attained by affiliation alone.