14 Feb Investment Underwriting of Full-Service Hotel
Client Challenge:
A large endowment fund was evaluating a potential joint venture investment to recapitalize an underperforming full-service hotel. The property required significant capital upgrades and repositioning, and the sponsor had proposed closing the hotel, performing a full renovation and changing the flag. Client retained Arcturus to review and analyze the investment, proposed business plan and transaction structure, and the sponsor’s capabilities.
Arcturus Solution:
Conducted extensive market analysis and site inspections
Reviewed the PIP and compared with the sponsor’s renovation plan
Analyzed and underwrote operations and financial projections under multiple investment alternatives including closing the hotel and keeping it operational
Assessed the sponsor’s business, operating and marketing strategies
Reviewed the in-place ground lease and potential sale/leaseback structure
Evaluated the construction and management capabilities of the sponsor
Prepared a written assessment and investment recommendation for Client’s investment committee
Key Outcomes:
Advised Client to pass on the investment due to the hotel’s poor competitive positioning, heightened execution risk, unfavorable transaction structure, and questionable liquidity
Client’s investment committee concurred with Arcturus’s assessment
Investment into a high risk project that would have likely had future difficulties was avoided allowing capital to be allocated into more favorable opportunities