WHITE PLAINS, NY— Starwood Hotels & Resorts formalized a mezzanine lending program that will help get hotel projects done despite the tight lending climate. Not only will the program help its owners and franchisees with costs related to the construction, conversion and renovation of Starwood-branded hotels, it will also aid Starwood in securing some larger new construction hotels in locations they have been looking at for some time. While the company has provided mezzanine financing on a one-off basis for a while, executives at the company decided it was time to develop a more formal package, said Joe Long, senior vp/acquisitions and development, Starwood Hotels & Resorts. The structure of the program will allow Starwood to become more efficient in its mezzanine lending operations, with formalized procedures, he said. Meanwhile, it will help Starwood owners and franchisees develop and enhance Starwood-branded properties through an accessible source of secured secondary financing, and is available to select borrowers. For some time, the industry’s lending conditions have been strict, and obtaining financing has become increasingly difficult. And while there is mezzanine financing out there, the terms are often more expensive than most hoteliers can handle. “It’s an opportunity to help our owners secure the necessary capital for hotel projects in a very difficult market,” said Bob Cotter, COO, Starwood Hotels & Resorts. “[indeed], Starwood’s terms are easier for our people,” said Sam Winterbottom, president/franchise division, Starwood Hotels & Resorts. Winterbottom said that Starwood would qualify select franchisees on a case-by-case basis— paying particular attention to those in locations where the company wants to establish a presence or increase its presence. “From the company’s perspective, it will be used to help benefit our distribution,” Winterbottom said. He also noted that by announcing an official package to the hospitality community, it would allow the company to compete more effectively in the marketplace with other firms offering similar packages. Long said that the loan will be particularly useful for those seeking to build new, larger hotels. “These are the toughest ones to get financing for. Their cost is usually between $60 million and $200 million for a single asset, and the lending environment typically only gives 50% to 60% of the project cost, so we help bridge the gap with another 10% to 15% with this loan program.” Due to the fact that the larger hotels and resorts are so different from one another, Long said that rates and security on loans of that type would vary. However, he did note that he expects much of the money to be used for new urban hotels and resort locations. Focus markets for these types of properties include Washington DC, Orlando (for a convention center hotel) and Minneapolis, he said. Winterbottom said that the program already has several deals in the works. He noted, from a franchising perspective, that the first of the loans to get approval will likely be those for developers that need the money to get their deals with Starwood-flagged properties done. The next loans approved will likely be for those developers who are on the fence, and the program would sway them in the direction of developing a Starwood-flagged hotel, he said. Existing franchisees in need of capital to improve the quality of their hotels will also be considered. Loans are expected to shake out, on average, at the $2 million range for those who qualify, according to Winterbottom.
