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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