NAI Global, the premier managed network of commercial real estate firms and one of the largest real estate services providers worldwide, announces its expansion of coverage into the Commonwealth of Puerto Rico, with the addition of NAI Puerto Rico.

Headquartered in San Juan, NAI Puerto Rico is a full-service commercial firm offering a complete range of real estate services including tenant representation, marketing research, location consulting, project management, lease renewals/restructures and acquisitions/dispositions

NAI Puerto Rico was founded by Hector J. Aponte SIOR, an industry veteran with over 15 years of experience in the commercial real estate industry. Hector has completed a wide array of major real estate transactions in Puerto Rico, for private and government clients such as Bayer, Sanofi, Publicis, ConAgra Foods, WPP, CSA Group, Marsh & McLennan, Starbucks Coffee, U.S. Army, IRS, and the EPA.

“By joining NAI, we are expanding our capabilities and resources to many international markets; this will definitely boost our services and will keep us on top,” said NAI Business Director, Mr. Hector J. Aponte. “NAI gives us new technology, tools, shared resources, marketing, and access to over 350 offices worldwide, which will enable us to develop new opportunities for clients looking for extensive representation or international resources.”

“This is a key market for us, especially for our corporate and investor clients seeking to take advantage of the commonwealth’s attractive tax policies,” said NAI Global President, Jeffrey Finn. “With Hector and his team at NAI Puerto Rico, we now have some of the best real estate experts in that region to serve our clients. I am excited about our new partnership and look forward to working together in the coming months and years.”

NAI Global is among the largest commercial real estate services organizations in the world, comprising 5,000+ professionals in 55 countries in more than 350 offices. NAI advisors such as NAI Puerto Rico work in tandem with its global management team to ensure clients strategically optimize their real estate assets. NAI offices complete over $45 billion in combined transactions annually and manage over 300 million square feet of commercial space.

NAI Puerto Rico is located at Ponce de Leon Avenue #1072, San Juan 00928

About NAI Global

NAI Global’s extensive services include corporate real estate services, brokerage and leasing, property and facilities management, real estate investment and capital market services, due diligence, global supply chain consulting and related advisory services. To learn more, visit www.naiglobal.com. Follow us on Twitter (@NAIGlobal) and Facebook.

Operating performance from hotels has generally decreased substantially from the peak in 2007 as a result of the economy.  Additionally, property values have decreased further with the cap rate decompression that resulted from the capital markets issues.  In many cases, this created untenable situations for otherwise credible and capable hotel owner/operators.  Many a lender has found itself in the untenable position of being upside down in a hotel loan and needing to move the loan/property out of its portfolio in a very difficult market.  Although the current borrower may be the best alternative for maintaining or turning around the asset, they are in no financial position to buy back their loan.

Here is where the sale leaseback fits in.  An investor acquires the property from the bank and leases it back to the current owner.  Unlike a more traditional sale-leaseback, this is a distressed situation.  Therefore, the risk adjusted returns for these investors may be substantially higher than traditional debt costs.  However, the heavy discounting in pricing that may occur in acquiring the property from the bank may more than offset the higher costs in the eyes of the troubled borrower.  To illustrate how this might work, the following is based on a recent negotiation:

• A limited service hotel was acquired in 2007 for $2.3M
• The owners place a $1,750,000 mortgage on the property
• The borrower defaulted and the property ended up in special servicing;
•  The borrower is still operating the property
•  The current property appraisal is $1.1M
•  The Lender has indicated that it will sell the property for $750k all cash.

 An investor has proposed to acquire the property from the bank as proposed and cover transaction costs plus limited cap ex funds; in total investing $800k.  In turn, they propose to lease the property back to the former owner for a term of five years at a rental rate that provides an absolute net 10% return to the investor.  Additionally, the tenant will have the right (and does have the intent) to buy the property back from the investor at a price that yields the investor an unleveraged 15% IRR.

From the Lender’s standpoint, they sell the asset all cash and exit the deal.  From the investor’s perspective, they are acquiring desirable real estate at below replacement cost on a passive basis.  The lease provides for certain covenants to protect and preserve the asset.  If there is a default, the eviction process is deemed desirable by this investor to a foreclosure process.  The yield is attractive to the investor.  Further, they intend to place 50% leverage on the property post acquisition to substantially increase their yield and are covering their acquisition costs in the transaction.  I should point out that part of the underwriting included an assessment of the risks of becoming the operator should the tenant default.  A careful review of the operator and certain limited guarantees accompanied the proposed lease.

Finally, from the current owner’s perspective, they resolve their distressed debt situation.  They maintain operation control of the property with the potential to benefit from upside in net cash flow in excess of the lease payments. Additionally, they maintain their management fee income.  Their buy-back provision enables them to get back into the property at a substantially lower basis than their original investment.  Lastly, little to no underwriting is involved as they know the property and are perhaps in the best position to assess the risks.

NAI Hospitality is finding the sale leaseback to be of significant interest to our investor clients and a creative and credible solution for our owners/operators.

With the push of a button, consumers are able to access almost unlimited information about your property.  In most cases, this information is a one way conversation that a reader has no way of substantiating with regards to its validity.  Imagine a bad guest review, based more on the mood of a unhappy guest or worse, a vindictive guest.  As potential guests compare hospitality offerings on the internet, imagine the impact of an unfair review on their booking selection.  As a consumer reads complaints about cleanliness, bad service or worse, the likelihood of them choosing your hotel drops dramatically.  Sadly, if the complaints are unfounded or based on a nonrecurring incident, they still have sweeping effect on your property.

So what is a hotel owner to do?  First and foremost, an important component of any property marketing program should include “e-management.”  At a minimum, you should be aware of what consumers are saying about you.  Additionally, you should be making sure that the right messages are being sent into cyberspace.  Further, it is possible to manage the content of sites such as Wikipedia, within their guidelines, and to effect the queuing of information that turns up in a Google search.  In short, one needs to be aware of what is being said; be able to respond accordingly and when possible, have some effect on how and when the information appears in searches.  Today there are a number of marketing professionals that understand the cyberworld and can help you navigate through the process.  Services range from monitoring services to rewriting algorithms to affect the priority of information and its relevant queuing in internet searches.  The internet is here to stay and the savvy hotelier will manage its pitfalls and utilize it to their advantage.

-Paul Reitz

Paul Reitz, CCIM is Senior Vice President of Investment Services at NAI Global and is a hospitality specialist in NAI Global’s Special Asset Solutions and Investment Services groups.

As you drive occupancy up, you increase variable expenses to maintain and supply a room and you increase wear and tear on your property.  However, subject to the property type and availability of various amenities, higher occupancy means increased revenue opportunities throughout the hotel.  With a solid understanding of the typical revenue generated per occupied room, one is in a better position to predict the financial impact of increased occupancy in the hotel. 

Yet, one needs to dig deeper to fully understand the impact.  If lowering rate to drive occupancy is the strategy, one needs to consider potential changes in the both the classification of guest and the type of guest.  Spending patterns may vary significantly between a guest attending a conference, one on a per diem account and a leisure guest.  Rate versus occupancy strategies should always include a close look at the historical revenue patterns by guest segment if available.  Other indirect considerations should include the potential benefit in attracting new guests to a property. Provided that the experience is an overall positive one, attracting new guests can have residual benefits to future bookings.  The trade off here is a potential negative impact on the guest experience if higher occupancy changes the ambiance of the property or quality of experience.  Higher density means potentially less availability of services, more noise and more challenges to your staff.  In short, there is no easy answer to which is better.  The safest bet is knowing one’s property, its guests and their spending habits and the reasons your property attracts guests in the first place.  My personal recommendation is to always focus on profitability, acknowledging that rate and occupancy are merely part of the equation.

-Paul Reitz

Paul Reitz, CCIM is Senior Vice President of Investment Services at NAI Global and is a hospitality specialist in NAI Global’s Special Asset Solutions and Investment Services groups.

Over the past two years, concerns over the economy and corresponding cuts in consumer and corporate spending have dramatically hit the bottom line of hospitality properties.  It is not unusual to see 25% to 35% drops in net operating income over the prior year. Coupled with a decompression of cap rates due to the financial markets, hotels have taken a double hit to their value.

Adding greater uncertainty to the equation are the complications of running an operating business with a significant labor component and a dependency on third party reservation systems. With climbing default rates, many lenders are finding themselves faced with the compounded challenges of dealing with a foreclosed property and having to run the operating business. Although there are many competent and qualified management companies interested in assisting lenders, in reality these management contracts are by nature transitional. It is extremely difficult to get commitments from the best personnel for short term situations.

For all of these reasons, hotel properties are demonstrating some of the largest value declines. For the skilled investor that understands the operating risks of a hotel property, today’s marketplace offers incredible opportunity.  Values well below replacement cost with yields reminiscent of the post-RTC days are back!