Pitfalls of Private Versus Institutional Financing

By Larry K. Kimball Director of Hotel Development, C. W. Clark, Inc. | November 28, 2010

This past tumultuous two year period has seen large and small banks come and go, regulations rise, consumer demand fall, hotels close, and the general public's acceptance of uncertainty about the future. While we are all reluctantly drinking the "new normal" kool-aid manufactured by Wall Street and politicians, commercial real estate developers need to consider the implications on financing. Are the traditional US institutional lenders lending? Not really. Will institutional banks, pensions, and life companies return and who are all of these new private capital groups? This article is a roadmap for successfully navigating the 2011 financing maze.

What is now affecting the traditional institutional lenders?

Basel Global Cure All

Like the case where the medicine harms the patient, the recent introduction of a global liquidity standard for the largest banks is expected by many to restrict credit and increase borrowing costs . As a contrary indicator that helps prove this growing consensus, Treasury Secretary Geithner said the opposite will be true- US banks can meet higher capital rules through future profits without crimping lending. If that is true, why did Deutsch Bank, historically an aggressive hotel construction lender, announce in September 2010 plans to raise $13.3 billion in new capital through a stock offering? Why would Angela Knight of the British Banker's Association state "All the changes are good from a stability perspective but add billions to the fixed operating cost of a bank. The result is that the cost of credit - the price that borrowers pay for money - will rise. The cheap money era is over. " As you can see, the new liquidity standard that essentially requires a doubling of risk capital over the next few years is an international standard and not a US-only issue.

US Dodd-Frank Reform

Financial regulatory reform in the form of this 2,300 page law adds uncertainty while providing new safeguards. A recent AEI publication summarizes the potential impact of the law very well:

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.