Bhavik Dani Featured on Midland Media: Podcast

1 min read

Earlier this month, our very own Dealflow Officer Bhavik Dani lent his hotel crowdfunding expertise to Midland IRA, on their Midland Media: Podcast Series. Bhavik goes in depth about how hotel crowdfunding distinguishes itself from other real estate investment opportunities, and also discusses our team’s journey so far on the road to making hotel crowdfunding accessible to investors across the nation!

Check out the full podcast here.

Interested in learning more about hotel investments and EquityRoots’ hotel crowdfunding platform? Click below!

EquityRoots - Hotel Real Estate Investments Platform

 

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Introduction to Crowdfunding

3 min read

Hi. I’m Bhavik Dani, Dealflow Organizer with EquityRoots.com. It’s my pleasure to talk to you about how crowdfunding is revolutionizing the hotel industry. EquityRoots.com uses crowdfunding as a finance mechanism to raise capital for real estate assets, specifically for premium branded franchised hotels. EquityRoots combines and harnesses the buying power of the crowd to bring you investment opportunities in institutional grade investments that were once available only to REITs, insurance companies, and the largest corporations. Our crowdfunding technology allows even the smallest of investors to pool their capital right next to proven developers and industry leaders. Hotel crowdfunding is really a system in which everyday folks like you and I become the source of capital. The capital can be structured as equity, debt, mezzanine debt, and sometimes even convertible debt. This capital is fairly flexible with how a developer can use it to further grow and improve business, from renovating a pre-existing hotel development to constructing and designing an entirely new development from scratch.  The advantages of crowdfunding to investors include:

Diversifying Risk

We can diversify risk by allowing the crowd to buy fractional interests in different hotels across the country. EquityRoots allows investors to select multiple assets, affiliated with different brands and located in various geographic territories.

Institutional Grade Assets

Next, it allow hotel investors to own a piece of an institutional grade quality hotel. Let me explain a little further. The average hotel groups and hospitality groups have the ability to build a standard 80-120 room hotel in a suburb, where barriers to entry and construction costs are often lower. However, in center city urban markets – like Chicago and New York – investors often encounter high barriers to entry and substantially higher construction costs. Deals in such markets can become out-of-reach for traditional hoteliers and real estate investors. This is where crowdfunding kicks in. By pooling capital from everyone, it allows combined leverage of the crowd to pursue a higher-grade, higher-quality deal. It’s something usually reserved for institutions –  REITs and insurance companies as I mentioned.

No Middleman and Commissions

Another advantage is removing middlemen and commissions. The crowdfunding process is very clean and simple. Our crowdfunding platform doesn’t allow broker fees or commissions for buying and selling the investment. EquityRoots aims to make every penny of your dollar count in the investment.

 

EquityRoots - Hotel Real Estate Investments Platform

Ownership Beyond Paper

Investing in property and buildings that you can see and visit is probably one last advantage I’d like to share. Hotel crowdfunding investments are markedly different than paper stocks and bonds – paper certificates that we trade on by speculation and can never actually “see” in the same sense that you can see and visit a hotel you invest in. Real estate is an investment that you’ll always be able to see. It has real property interest and improvements on the land.

Conclusion

These are just a handful of the reasons why hotel crowdfunding is such a game changer – not only does it harness the power of real estate crowdfunding, but it also allows real estate investors new and old to gain access to those high-barrier markets. EquityRoots is hotel crowdfunding, democratized for today’s investors.

 

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Do Brands Still Matter in 2017?

5 min read

Are Millennials Blind to Hotel Brands?

Do brand preferences still matter in the Millennial generation? This question comes up because Millennials have shown an emerging taste for untraditional, decentralized, and independent local providers of goods and services in what is commonly referred to as the “sharing economy”. The sharing economy has undoubtedly made an impact across multiple industries.  Sharing economy leaders like Uber and Airbnb are estimated to grow to $335 billion by 2025. This significant growth leaves many hoteliers and investors alike wondering how the hotel industry will continue to change moving forward. Many are also asking if hotel brands matter at all? After all, Millennials seem to be happy with online travel agents (OTA’s) where brand loyalty doesn’t matter, or online platforms like Airbnb which reveal a preference for more communal, local, and location-authentic lodging experiences.

Despite higher preferences than their older counterparts, Millennials still show strong preferences for branded hotels.

The travel and hospitality marketing firm MMGY Global launched a study hoping to answer questions about these changing hospitality preferences among American travelers. (You can check out the full article here.) Peter Yesawich from MMGY Global has some great insights worth checking out, and below is a snippet of that report:

Source: MMGY Global

Highlights from the Study

Our team at EquityRoots also wanted to take a look at the study results to find a conclusive answer on whether or not hotel brands will still matter into the future.

In short, yes – brands still matter, and investing in the right hotels can still lead to a fruitful real estate investment.  It’s true that Millennials still show more interest in a shared economy, especially compared to other age demographics. Knowing this, are hotels still solid real estate investments? Yes, of course they are. Millennials’ preferences are still similar to their older counterparts, including high preferences for full-service flags like Hilton, Marriott, and IHG (77%) as well as all-suites properties (70%). Looking at cumulative interest across all age groups, we see that big brand hotels are still preferred by a vast majority.

The rise of the sharing economy doesn’t take away from brand loyalty. Let’s take a look at our Millennial Airbnb travelers as a case-in-point. Bed and breakfast operations have existed way long before Airbnb (and even before the rise of hotel room standardization in products like Hilton and Holiday Inn). However, brands like Airbnb and HomeAway are streamlining alternative lodging, gaining strong loyal users. Even though Airbnb users are staying in different hosts’ accommodations from trip to trip, many Airbnb users continue to use only the Airbnb platform to find those rooms. In other words, they are familiar with the brand Airbnb and choose to book through there the same way that many travelers today maintain degrees of loyalty among the Hilton or IHG or Marriott. Despite the huge variance that might exist on Airbnb’s platform, users have come to Airbnb repeatedly with some sense of standardization and expectations.

EquityRoots - Hotel Real Estate Investments Platform

Hotel Brands Continue to Evolve

The question now becomes “how do current hotel brands adjust to capture the sharing economy audience?” It’s a question that hotels are already taking steps to answer including by:  

– Developing new hotel products like Marriott’s Moxy, Hilton’s Tru, and IHG’s Avid that target the emerging Millennial preferences

– Partnering with Airbnb to provide food and beverage solutions

– Offering “local experiences” and trips that are commonly utilized by the sharing economy.

The hotel investor can rest at ease. Hotel products from strong, established hotel brands aren’t going away anytime soon. Corporate travelers and companies still prefer lodging with hotels, considering hotel brand benefits such as loyalty points and more established quality standards across a wealth of hotel franchise locations. If anything, the hotel industry is thriving, continuing a trend of growth since 2010 as hotel demand increases faster than hotel supply. On top of this increasing demand, hotel companies continue to innovate and appeal to travelers, whether it be through adopting new food and beverage options, creating more communal living arrangements or utilizing the latest technology to provide travelers with instant check-in and other amenities. As the hotel industry continues to evolve, hotel investors will need to keep a fresh eye open for both strong performers in the present day, as well as potential performers in the future.

Sources

“2017 Set to Bring Modest Growth for U.S. Hotel Industry.” Zacks Equity Research. Jul 17, 2017. NASDAQ. 

“Global Portrait of American Travelers.” MMGY Global.

Moyer, Liz. “Hotels, Feeling the Pinch of Airbnb, Promote Local Experiences.” May 29, 2017. The New York Times. 

Simon, Elaine. “Food-and-beverage an opportunity for hotels, Airbnb to partner.” Sep 22, 2017. Hotel Management. 

Yaraghi, Niam and Ravi, Shamika. “The Current and Future State of the Sharing Economy.” Brookings India. 

 

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Keeping Chicago Competitive: The Hotel Supply Wave

4 min read

A Wave of Supply

Chicago’s hotel market is preparing for a supply wave. In the next few years, the Windy City expects to add an additional 12,000 to 13,000 new hotel rooms to its arsenal. To many, this isn’t shocking news. Hotel developers and operators in Chicago have enjoyed a steady climb in RevPAR since 2009. However, in 2016, we saw Chicago’s first decline in RevPAR in 6 years, a sign which some say is reason to worry about the incoming hotel room supply.

Market consultants and policymakers point to a potential oversupply problem as the source of their worries.  Under basic supply-and-demand principles, these critics essentially say that if there are too many hotel rooms in a market, then the price of each hotel room in that market will, on average, decrease.  There will be more hotel rooms than Chicago needs to accommodate its visitors and with more hotel rooms than hotel guests, the argument is that each hotel will get a smaller piece of the pie. We believe that these claims are blown out of proportion and fail to acknowledge any of the upside. While the argument is fairly simple and logical, the critics are erroneously oversimplifying the market and overlooking the micro and macroeconomic consequences. Our business team at EquityRoots wants to make sure investors and hotel owners are not oversimplifying Chicago’s market and then making assumptions on those generalities.

A robust supply of hotels are critical in establishing continued economic growth in Chicago.

Other regions in the United States outside of Chicagoland (San Antonio, New York, and Seattle, to name a few) have similarly seen the development of new hotels in their respective markets. These brand new hotels attract additional business and travel, and keep their cities competitive in the hospitality market. Cities that fail to upkeep their hotel inventory can lose out on significant business opportunities and city revenue. This includes Chicago, which stands to lose much ground to other established and on-the-rise metropolitan areas. If Chicago wants to remain a world-class city that is capable of handling large conventions and attracting major corporations to set up shop, it needs to keep things fresh with updated hotel products.

The Chicken, or the Egg?

If you’ve been watching Netflix recently, you might have stumbled upon “The Founder,” which takes a look at the entrepreneur Ray Kroc and his role in making McDonald’s a worldwide brand. For Ray Kroc, business growth is a supply and demand issue. Which comes first, the chicken or the egg? Ray Kroc believed that new supply attracts new demand, building the McDonald’s restaurant empire on this theory.  

Likewise, EquityRoots.com believes that the threat of oversupply is overhyped, particularly for the newest hotels to enter Chicago’s market. While it is true that there will be more hotel rooms available in Chicago from a sheer numbers standpoint, the newest constructed hotels will drive others to improve. Newer hotels that are slated to open in Chicago – including a Cambria hotel in Chicago’s Loop and a dual-brand IHG hotels in Schaumburg – introduce updated and upscale venues with cutting-edge floorplans that appeal to old and new visitors to the city. Modern additions including rooftop venues, new technology, and newer beds are likely to attract the majority of incoming travelers, and this is a standard that corporate travelers have come to expect in other markets across the country. This means that the pressure falls to older hotels to reinvest and renovate, especially those that are 20 years old or more. For example, developers are already spending about $20 million to renovate the Talbott Hotel in the Gold Coast in order to keep the asset competitive. Other older Chicago hotels are also expected to renovate and update their rooms and designs to avoid the risk of becoming outdated. Chicago’s hotel room supply will continue to be updated.  Increased expenditure and capital improvements will ultimately raise an owner’s basis, driving rental rates higher to obtain the same return.  As a result, the entire market responds by increasing average daily rates.  The supply of total rooms will go up, but so will quality.  This gives all hotels the edge in competing for corporate and leisure travelers. As a whole, competition will drive up the quality of hotel services and products offered in Chicago, which lead to positive experiences and can encourage even more travelers to visit the Windy City and drive demand.

Moving forward, Chicago is expecting more travelers, which is great news since the number of conventions and meetings held last year in 2016 was atypically low for the Windy City. When you couple that with high-publicity events like the Chicago Cubs’ World Series win last year, EquityRoots.com expects that the future still remains bright for Chicago’s hotels.

 

EquityRoots - Hotel Real Estate Investments Platform

So, what caused the 2016 decline?

If it wasn’t primarily oversupply that pushed Chicago’s downward RevPAR dip in 2016, what was the source? Chicago is facing microeconomic issues.  For starters, the city’s current lodging supply is outdated compared to other cities.  It’s also worth noting that Chicago was in the running as a host city for the 2016 Summer Olympics. During the bidding process, corporate travelers shied away from booking in Chicago because the Olympics typically creates a lot of traffic, congestion, and delay in the way of a busy work/meeting schedule.  A number of conventions and businesses avoided booking travel to Chicago during the time frame that the 2016 Olympics would be occurring, opting to hold their conferences and meetings in other cities like Detroit, Indianapolis, Las Vegas, or Minneapolis.  When Chicago wasn’t awarded the 2016 Summer Olympics bid (which went to Rio de Janeiro), the city got a 1-2 punch. The city not only missed out on the opportunity to capitalize on a huge wave of tourism for the games, but also was hurt by the void of typical corporate travel avoiding the market. As 2017 and future years pose more typical operational years, we believe the hotel industry will continue to improve in Chicago.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Staying Competitive

Freezing free market activity and slowing down updated prototypes will push Chicago laps behind in a race against other cities. America and capitalism thrived on encouraging innovation and progress.  If Chicago were to halt new development for fear of oversupply, it will have comparatively lower quality lodging than other cities, which will make it more difficult to attract travelers and other demand drivers to come here in the first place. We are seeing incredible market strength in cities like Seattle, NYC, and Boston – cities that happen to offer the latest and greatest hotels and amenities.  Chicagoland needs to put pressure on the status quo, create pressure to improve, and bring in the latest and greatest facilities so that we can attract more businesses and travelers to come here.

Sources

Gallun, Alby. “Hotel market falters after six-year run.” Crain’s Chicago Business. Sept 26, 2017. 

Gallun, Alby. “Will the downtown hotel market bounce back in 2017?” Crain’s Chicago Business. Jan 30, 2017. 

Hoisington, Alicia. “Oversupply concerns loom over Chicago.” Hotel Management. Mar 6, 2017. 

Ori, Ryan. “Talbott Hotel to shut down for $20 million renovation.” Crain’s Chicago Business. Dec 8, 2016. 

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4 Great Benefits of Hotel Crowdfunding

4 min read

EquityRoots.com uses crowdfunding as a finance tool to raise capital for premium branded franchised hotels. We harness the buying power of the crowd to create investment opportunities in institutional grade assets that were once only available to REITs, insurance companies, and established players in the hospitality industry. Our crowdfunding technology allows even the smallest of investors to invest alongside professional real estate developers, hotel owners, and other like-minded investors. It’s a system in which everyday folks can tap into serious sources of capital for investment purposes. This capital can be structured as equity, debt, mezzanine debt, and sometimes even convertible debt – security instruments that are designed to yield a return for investing. There are plenty of advantages in crowdfunding investments. Here are just a few!

1. Diversifying Risk.

Hotel investors can diversify risk by investing in fractional interests in different hotels across the country. Hotel investors can select hotels under different brands in various states. Our EquityRoots platform allows investors to select multiple assets, and buy shares or investment units in different projects and properties, diversifying your investment risk by brand, by the market, by different geographic regions, or simply by the different types of hotels, whether it is an extended stay, limited service or full-service hotel.

2. Owning Pieces of Institutional Grade, High-Quality Developments.

Typical hoteliers and hospitality groups commonly pursue 80-120 room properties in secondary or tertiary markets. This is where barriers to entry are often less and construction costs are generally lower. However, in higher density urban markets such as Chicago and New York, hoteliers face much higher barriers to entry and construction costs are significantly higher. Consequently, many hospitality groups aren’t able to penetrate into those markets. Primary urban markets have institutional grade assets that typically cost $20-50 million and although they can take many years to develop, it’s worth the hassle. Institutional grade assets tend to have the highest average daily rates, highest occupancies, and strongest profit opportunities for their owners and investors. But because of their size and other barriers to entry, these deals sometimes become out-of-reach not just for everyday people, but also for proven hoteliers. This is where crowdfunding kicks in to provide leverage and opportunity that hotel investors otherwise would not have access to. By pooling capital from crowd, EquityRoots’ crowdfunding platform allows everyday folks to compete for higher-grade, higher-quality deals. Crowdfunding is now gaining access to deal flow usually reserved for institutional players like REITs and insurance companies, giving even new hotel investors a chance to enjoy the ownership of some of the most profitable opportunities.

 

EquityRoots - Hotel Real Estate Investments Platform

3. No Middlemen and No Commissions.

The crowdfunding process is very simple and efficient. Under specific exceptions to the securities registration requirements, broker’s fees or commission fees for buying and selling the investment are not permissible. Crowdfunding aims to make every penny of your dollar count in the investment, instead of letting middlemen walk away with your money.

4. Local-Concrete Investments You Can See.

Investing in property and buildings that you can see and visit is yet another advantage. Hotel investments are different than paper stocks and bonds; paper certificates that we can never see and often trade on speculation. Real estate is an investment that you’ll always be able to see. It has real property interest and physical improvements on the land. A family can walk into a hotel, point to it, and feel a sense of ownership. It’s a more rewarding investment experience than collecting paper certificates in a file cabinet.

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How Expedia and Priceline Impact Hotel Owners and Hotel Investors

9 min read

Special thanks to Christina Velasquez for contributions to this article.

When was the last time you used Expedia to book flights or a hotel room? Travelers often turn to Online Travel Agencies (OTAs) like Expedia to quickly find available accommodations, but that doesn’t mean that everyone is benefiting. Nowhere is this truer than in the hospitality industry.

This year alone, we’ve seen both AccorHotels (products include Ibis, Novotel, and Pullman) and Hyatt go head to head with Expedia.1 Hyatt, in particular, made headlines when it threatened to stop working with Expedia altogether, although just last month Hyatt admitted it would continue to work with the OTA for the foreseeable future.2 This isn’t anything new. In 2004, IHG actually left Expedia and did not have any listings on Expedia sites until it re-entered its partnership with Expedia 3 years later. Choice hotels in 2008-2009 had a dispute with Expedia as well, and shortly after the dispute, the hotel brand told all its franchisees that all Choice products would not be on Expedia.3 Despite hotel brands and hoteliers relying on OTAs for a large part of their annual room bookings, these disputes reflect a discontent among hotel owners that is neither new nor insignificant. So…what’s the big fuss about?

It’s a tricky game. In order to understand the Hotel-OTA conflict and analyze potential solutions, let’s first take a look at how OTAs work and they impact hotel owners.

Giants of the Industry

Every industry has its giants. The NBA has the Warriors and the Cavs. The tech world has Google and Facebook. In the hotel industry, we have the big three – Hilton, Marriott, and IHG – all established hotel brands that EquityRoots strives to work with in our own projects.  

But who owns the OTA world? There are two companies you’ve undoubtedly heard of:

  1. Expedia, Inc. has quite the roster, with an army of websites including Expedia.com, Hotels.com, Hotwire.com, Travelocity, HomeAway and Trivago.4 In 2015, Expedia acquired Orbitz Worldwide, which also includes Orbitz, CheapTickets, and Ebookers, among several other brands. Add to that thousands of other affiliate sites, and you’ve got one major player controlling much of how OTA’s operate.
  2. The Priceline Group is the other worldwide giant with a hefty lineup of its own, including Priceline.com, Booking.com, Agoda.com, Kayak.com, OpenTable, and Rentalcars.com.

These powerhouses alone hold incredible influence in the hospitality industry in no small part due to their all-inclusive appeal to travelers. Travelers using Priceline or Expedia can book not only hotels, but also auto rentals and flights. Planning a vacation to Los Angeles? It’s pretty easy to log onto Expedia.com, and search for a flight and hotel for your trip. Online filters generally allow you to specify dates, times, and travel budgets to best fit your needs. Hotel owners can actually utilize this powerful tool in a way that benefits them more appropriately – but more on that later.

If travelers search for hotel bookings in L.A. right now, they can compare pricing and offerings from the Hilton Pasadena, the Best Western Plus Garden Inn and Suites, and La Quinta. Once a traveler has made their hotel selection, an OTA actually handles the payment of the hotel for you. From the traveler’s perspective, it’s not difficult to appreciate the convenience.  Especially for travelers not loyal to specific hotel brands, they can use OTA’s to pick the right lodging for their needs efficiently.

How does this hurt hotel owners?

Hotel owners pay hefty commissions when working with OTAs, and increasing dependency on Expedia and Priceline can compromise sustainability in hotel operations. For example – let’s say you own a hotel in L.A. For simplicity, your rooms are priced at $100 per night. Chuck from Chicago decides to fly into L.A. for a trip. Chuck walks into your hotel, and requests a room, paying that $100 rate. Chuck gets to stay at your hotel, and you get to keep $100 in revenue. Straightforward.

Let’s compare Chuck to another guest at your Hotel, Erica. Erica decides to book her hotel through Expedia. She books the hotel online with the same listed room price of $100. Expedia handles the payment and gets that $100. Then, Expedia takes a commission and only pays you $75 as the hotel owner.

Whoa. What happened? Since Expedia helped you, (the hotel owner) gain a customer, the OTA charges you a commission. After all, without Expedia, Erica may never have booked at your property. The hotel owner has to pay a fee of 25% of the room rate – $25. This rate is pretty typical of many OTAs.

A distinction worth highlighting is the fact that Erica does not pay that commission fee. You do as the hotel owner. That’s primarily how OTA’s make their revenue – by charging a fee for hotel rooms booked online. Among all its services offered, Expedia makes 70% of its revenue through hotel bookings.5 That’s not to say that OTA services are not valued. Oftentimes, getting customers through OTAs is a great tool for a hotel owner to have. The issue is that the commission for these bookings are high enough to make it difficult for hotel owners to continue operating.

This booking fee isn’t a one-sized-fits-all setting. Hotel brands like Marriott and Hilton independently negotiate their own commission rates with OTA’s, and those commissions can vary depending on whether or not the booking date is a weekday or a weekend. Typically these rates range from 15-28%, depending on the brand. Independent hotel owners unaffiliated with a brand can face commission rates as high as 30% of the room rate. If your rate is $100 a night, you only earn $70 if your customer decides to book through Expedia.

Hotel Owners Suffer from OTA Dependency

Back to the example with you being the hotel owner. Although it’s true that you still get to keep the larger part of this revenue from Erica’s booking, you’ve been facing increasing costs in the past few years. Labor costs are on the rise.6 You’ve got to pay utility bills, mortgage, internet systems and other new tech costs to keep up with competition in the industry. With Priceline and Expedia charging the high rates in commission, hotel owners have a decreasing budget to cover more front end costs. In contrast, OTAs don’t have to pay the same overhead, brick-and-mortar, and maintenance costs that hotel owners have.

Additionally, a growing concern is that OTAs are becoming the norm rather than an alternative for hotel bookings. Younger travelers especially are conducting many of their travel bookings through online platforms like Kayak and Expedia. In the past, hotel owners were looking at a smaller percentage of their rooms to be booked by OTAs. As OTAs have grown, many hotel owners are now seeing the vast majority of their rooms being booked through OTA’s – this makes it difficult for hotel owners to sustain their operations without raising the prices of their rooms.

It’s important to emphasize that most of the damage is felt by hotel owners, not hotel companies. With or without OTAs, hotel companies still retain much of their revenue through royalty fees (also paid by hotel owners) and are more insulated from the effects of online middlemen.

That doesn’t mean that these hotel companies are completely safe from the effects of OTAs. When OTAs create a large impact on thousands of individual franchise owners, increased discontent among those owners push waves of communication to hotel brands with a clear message: something has to change. That’s what we are seeing now with several hotel brands now questioning their current working relationship with OTAs.

 

EquityRoots - Hotel Real Estate Investments Platform

Flights, too?

For better or for worse, OTAs are not going to go away in the future. If anything, they will continue to grow. Yet, hotels aren’t the only ones who have scuffled with OTAs. Airline companies such as Delta, American and US Airways have all at one point removed their flights from Expedia to protest high fees. To this day, Southwest Airlines still keeps listings off of OTAs because of those fees.7 Other airlines charge a fee if travelers book through OTAs: most recently, British Airways announced it would start charging a fee for many third party bookings on OTAs.8

Airline brands have even rallied together to leverage their fight against OTAs. Around 2006-2007, major OTAs got sued by several airlines for charging booking fees. The result fell more in favor of airlines. When travelers book airlines through one of the OTA websites, the airline still gets charged with some margin, but there are no longer any booking fees. Similarly, an Illinois Court gave American Airlines a win in their battle against OTA Orbitz (again, now owned by Expedia).9

Hotel brands could attempt to utilize some of the strategies utilized by the airline companies. Hotel owners can upcharge fees if guests book through Expedia or Priceline. Hotel owners can push for hotel companies to band together in a similar fashion as major airlines. It’ll take a high degree of coordination among hotel companies and hotel owners alike, but a concerted effort across the hotel industry could really benefit hotel companies and hotel owners in the long run.

Of course, it won’t be easy. Airlines are in a better position to challenge OTAs – because airlines own all the actual aircraft that travelers fly on; they have a unique position in that airlines own all of their assets. In contrast, the hotel companies do not own the hotels themselves – individual hotel owners do. The hotel brands give owners brand support in return for royalty fees, but they do not own the brick and mortar outright. This key difference gives airlines a greater reason to push back against OTAs, whereas hotel owners must coordinate with hotel companies on a large scale.

Hotel Owners can Utilize OTAs as an Asset

There’s an absolute need for hotel owners to put pressure on hotel brands, and hotel brands uniting against high commission OTA fees is incredibly important for sustainability. In the meantime, how do hotel owners utilize OTAs as more of an asset? There’s a definite stigma among hotel owners against OTAs, but there are ways to look at Expedia and Priceline as potential tools in the hospitality business. Hotel owners do have an opportunity to utilize OTAs like Expedia more appropriately in their favor. 

  • Utilize OTAs like Expedia as your research tool. Hotel owners can use OTA to shop other hotels in the area. OTAs are a powerful localized resource to see what your competition is doing in any given area.
  • Free advertising. The inherent benefit of OTAs is that you can advertise your hotel for almost zero upfront cost. Hotel owners don’t get charged if customers simply see their hotels on OTAs. Hotel owners pay the hefty commission if travelers book through the OTA.
  • Book Direct… Hotel owners should push to have guests book directly with them. Guests should use Expedia to search for the best value in hotels, but if they are booking through OTAs, hotel owners pay for royalties and OTA fees. If guests book directly with the hotel owner and brand, hotel owners benefit because they dodge paying the OTA commissions.
  • …and Invest in Loyalty. Of course, hotel owners need to recognize that it’s so easy for guests to use Expedia and Priceline. Utilize loyalty-building resources. Booking direct provides the opportunity to give guests loyalty points, and loyalty strengthens relationships between guests and hotel brands. Guests benefit from additional loyalty points and increasingly improved service from a long-term relationship with a brand, and hotel owners enjoy that loyalty in the form of increased bookings from repeat business (without paying commissions). If those points cost hotel owners 10% through direct booking by giving out those points, it is still cheaper than guests booking through Expedia and collecting a commission of 15-30%.

Marriott, IHG, and Hilton are some of the brands that have strong loyalty programs where guests earn free points for staying at affiliated properties, but if hotel owners are going to overcome high commission fees, action needs to be taken earlier rather than later. Appeal to hotel companies for higher degrees of support. This is something we are seeing more often now, and many hotel brands are actually asking their franchisees to leverage them further.10 Larger organizations like AAHOA can and already have taken steps to protect hotel owners.11 We’re confident in the ability of hotels to unite and overcome arbitrarily high commissions, and with strong efforts, hotels will be an even better real estate investment than they already are.

Sources

1. “AccorHotels Finds Competing with Expedia is Harder than Expected.” Skift.  Jul 31, 2017.
2. “Hyatt Isn’t Abandoning Expedia Just Yet as the Two Sides Reach Agreement in Principle.” Skift. Jul 31, 2017.
3. Schaal, Dennis. A Timeline of Online Travel Agencies Battles with Hotels and Airlines. Skift. Jun 21, 2017.
4. “About Us.” Expedia.
5. Page, Vanessa. “How Expedia Makes Money.” Investopedia. Aug 5, 2015.
6.Mandelbaum, Robert. “An examination of hotel labor costs.” Hotel Management. Nov 21, 2016.
7.Hobica, George. Battle Heats up Between Airlines and Online Travel Agencies. Airfarewatchdog. Oct 25, 2016.
8.chlappig, Ben. “British Airways will Start Charging a Fee for Many Third Party Bookings.” May 26, 2017. One Mile At A Time.
9.“Court Orders American Airlines Flights Back on Orbitz.” Consumer Reports News. Jun 2, 2011.
10.Mest, Elliott. “Hotel brands urge franchisees to leverage them further.” Hotel Management. Aug 21, 2017.
11.HNN Newswire. “AAHOA takes a strong stance on OTA issues.” Hotel News Now. Nov 9, 2009.

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Our Limitations on Funding

2 min read

To ensure quality, EquityRoots has a few limits on our funding policies.

What are our limitations on funding?

Many times we get inquiries about what types of deals EquityRoots.com funds. We fund a variety of deals: opportunistic turnarounds, acquisitions, new developments. However, we do have some qualifying criteria to ensure that our hotel investors have the highest quality crowdfunding projects available to them. All projects must be franchised with one of the big three brands. This includes Marriott, Hilton, and IHG. Why is it that we are only picking these three? It’s not to say that other properties and other franchises do not make money or are that they are poor investments. These properties do have the potential to perform well and earn returns, but the three big brands that EquityRoots has identified have proven track records of customer service, brand standards, and a sense of predictability that corporate travelers have come to expect. It’s the hotel brands that we feel comfortable investing behind and sharing to our hotel investors on our hotel crowdfunding platform. They have strong brand support that includes a robust central reservation system working to fill your guest rooms each night.

EquityRoots.com also likes to look at the type of transaction. New development hotel projects from the ground up tend to have longer planning times and disposition periods, but they also tend to draw in higher revenue than a comparable pre-existing hotel upon stabilization.  It’s no secret that new hotels often become market leaders, but hotel investors must endure 18-24 months of deferred returns during planning and construction.

Alternatively, existing asset acquisitions are also an attractive proposition because you’re ready to recognize a return on your hotel investment the day after closing.  Existing stabilized assets also allow hotel investors to see exactly the income that they’re buying, whereas new development deals are based on projections.

 

EquityRoots - Hotel Real Estate Investments Platform

Are there any dollar amount limits on funding?

In short – no. Traditionally, potential real estate investor bases are often limited by their location. EquityRoots’ platform allows sponsors to reach a larger investor base, using technology to enhance how they source capital. A Hampton Inn in New York City will have no problems raising capital online. It’s strong brand and larger sized market will allow this project to draw not only local investors in New York, but also investors from outside New York State. Our technology department focuses on effective quality search algorithms to make sure that investment opportunities are available to local investors. Interested hotel investors that may be researching how and where to invest in hotels online may find themselves directed to EquityRoots.com’s platform. You don’t have to live near an asset to perform due diligence and invest. With that said, we would expect the New York City Hampton Inn would raise quite a bit more capital than a La Quinta Inn in Albuquerque, New Mexico.

Looking beyond the deal itself

Oftentimes, the sponsor behind a hotel crowdfunding deal matters just as much as the merits and location of the deal itself. Although we don’t set funding limits, we often push project sponsors to contribute at least 50% equity, requiring them to share a significant stake in the success of the project.  This way, both passive hotel investors and project sponsors both share a mutual, financially backed interest in the success of the deal. Other factors matter too, and we look at each submitted project holistically before presenting the hotel crowdfunding opportunity to our hotel investors. In general, the better the flag, brand, sponsor, and market size – typically improve the outcome on the capital raise.

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Existing Hotel vs New Construction Hotel – Which is the Better Investment?

3 min read

Existing Hotel vs New Construction Hotel - Which is the Better Investment

Hospitality entrepreneurs usually enter a dilemma when it is time to expand their portfolio of assets, particularly hotels. They are confused whether to invest in a newly constructed hotel or to invest into the renovation of an existing one; investments should be made after measuring the pros and cons of each situation. Sometimes looking at the bigger picture is more relevant than the current performance of an existing asset, so it’s better to evaluate each option thoroughly.

There are two types of investments available for hotel entrepreneurs; either investing in an existing hotel or laying down the groundwork for a newly constructed one. Your choice should ultimately depend on the cost basis, time, quality, and potential disposition value of each deal.


Existing Hotel

 

Whenever you decide to undertake the renovation of an existing hotel, two things are always considered; the cost basis of your acquisition and the cost benefit of changing flags, or renovating the property into a different brand. This is especially true if the hotel is located in an extremely busy market, center-city location, or in market where vacant land is scarce.

How will you benefit from investing and renovating an existing hotel over constructing a new one? Here are the reasons:

-If you purchase an existing hotel with operating history, you’ll have a very accurate look of what’s going on today, or what the return on your investment currently looks like.

-Due to the rising costs of construction and scarcity of land in reputable markets, the feasibility of building a new hotel is harder said than done.

-Assuming the property is cash flow positive, you can recognize income 12-24 months sooner compared to new construction hotel investments.

-When buying an existing hotel, you can safely skip the entitlement, design, and development process.

-Sometimes acquisition cost can be significantly below new construction replacement cost.

-Existing hotels often have financing that you can assume. It’s convenient not having to go searching or negotiating for a loan when you can readily assume a good loan.

As far as the risks are concerned, you will have to think about the following:

-Many older hotel buildings do not have adequate electrical, plumbing, or mechanical functions to keep up with the demand of today’s corporate traveler. You’ll end up spending just as much money replacing these systems as you would installing brand new ones.

-The price of acquisition with the cost of renovation must not be greater than the cost of constructing a new hotel.

-You might have less branding options as opposed to building a new hotel.

-Selling renovated or repositioned hotels will most likely sell for a drastically smaller premium than newly constructed assets.

-Your maintenance costs will never be as low as new construction hotels.


New Construction Hotel

 

Investing in a new development project can also be a risky but rewarding investment. It’s important to invest in reliable markets and cater to the business traveler.

Upsides to New Construction

New development & new construction investments have numerous benefits, including:

-The guest experience and floorplans of today’s hotel prototypes are more efficient and modern than older hotels. Guest are satisfied and leave great travel reviews. Everything is new!

-New construction hotels typically become market leaders with rate and occupancy because business travelers don’t mind spending more money to stay in newer hotels.

-Operating profits are very lean because the property manager isn’t always spending money on maintenance and repairs.

-Disposition is often very rewarding. REITS and institutional buyers demand the best performing assets and often pay the highest value to new or newer hotels.

Downsides to New Construction

However, new construction and new development hotels are not without their own share of risks:

-The development process often takes 6-18 months of hard work with engineers, attorneys, architects, and City Officials with another 16-24 months of physical construction.

-No income during the development and construction process.

-Building codes and zoning laws are different everywhere and subject to government review

-Construction financing is generally tighter and more expensive than existing hotel acquisition loans. There are plenty of lenders for existing hotels, not so much for new-construction loans.

 

EquityRoots - Hotel Real Estate Investments Platform


Conclusion

Both options come with their own set of pros and cons. Whatever investment you end up making, you should take into account whether you’re making these investments to supplement your cash flow or to maximize your long term gain. Both of these objectives can be rewarding, but take a look at the bigger picture which can often be found in a metric called “equity multiples”.

equityroots.com is website owned and operated by Equityroots, Inc., a Delaware Corporation and real-estate developer specializing in select service and full service hotel development. Equityroots found value in partnering with Intercontinental Hotel Group (IHG), recently licensing two of their most iconic brands, Holiday Inn and Holiday Inn Express in a dynamic dual brand design. The development was able to identify Class-A vacant site in a market with barriers to entry, it was an easy decision to pursue new development given the circumstances.  New development projects and investments often require a higher degree of patience compared to existing hotel acquisitions, but the added layer of patience is often rewarded during the exit strategy.

For more information on hotel investments, visit us at www.equityroots.com or sign up for our monthly newsletter at the bottom of our homepage.

Sources

“Hotel Investment: How to Finance the New Supply.” Hotel Online. Apr 11, 2014.

Jones, Michael. “What Does it Take to Start a Hotel?”  Forbes. Feb 23, 2013.

LaSalle, Jones. “5 Forces Driving Hotel Investment.” Building Design and Construction. Feb 5, 2013.

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The New Industry: Hotel Crowdfunding

The New Industry: Hotel Crowdfunding

Crowdfunding has revolutionized the way people raise money to start new businesses, and the model has caught on in a number of other industries. Hotel crowdfunding is at the front of this new fundraising model. It gives investors the opportunity to cut out the middleman and invest directly in properties they believe in. Simply put, hotel crowdfunding gives everyone, from the seasoned investor to the newcomer, a way to invest in qualified hotel real estate properties.

 

How It Works

 

Potential hotel investors sign on with a hotel crowdfunding company, create their user profile and browse for deals they might be interested in. Once they find a property that fits their investment goals and budget, they can transfer funds and start their investment. Online dashboards provide feedback and information about each of their investments.

 

Who Can Invest?

 

Recent changes in regulation for the industry have made it possible for virtually anyone to own a piece of a hotel property. Investors fall under the categories of “accredited” and “unaccredited.” Accredited investors are those who have a special status under financial regulations, which typically means they have a net worth of at least $1 million or meet other income thresholds. Those who are unaccredited can still invest, but may be limited to certain offering types that become burdensome or take away general solicitation privileges from the sponsor.  And heck let’s face it, how are you going to find an investment opportunity if the deal can’t be generally solicited? That’s all about to change when crowdfunding companies like Equityroots.com take advantage of the newest securities laws such as Regulation A+, which carves a path for non-accredited investor participation.

 

Why Is Hotel Crowdfunding Becoming So Popular?

 

Besides hotels being an exciting and rewarding asset class, hotel crowdfunding offers a unique and innovative way for people to manage their money. They can invest in the hospitality industry without having to raise the capital to buy a franchise on their own, and they get the benefit of being able to invest alongside industry experts who know how to operate the property.  Many times, the investors are thinking about who they are investing with just as much as what they are investing in.  As of 2015, there were more than 300 securities-based crowdfunding real estate development offerings, and that number is only expected to get bigger as time goes on.

 

 

EquityRoots - Hotel Real Estate Investments Platform

 

 

Hotel crowdfunding is disrupting the traditional way of real estate investing, and it is also becoming a disruptor as a finance mechanism for large-scale projects. Investors can influence the outcome by choosing what they want to fund, and companies building hotels can raise the equity capital they need from the local community, or an online crowd of like-minded investors, rather than relying on some form of institutional Wall Street capital.  Money is money after all, no matter where it comes from.  Letting the masses have a shot at the risk and rewards is undoubtedly progression of our capital markets and financial Democracy.

 

Link: http://www.cnbc.com/2015/10/02/hotels-join-the-crowdfunding-craze.html

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Are Hotels a Better Investment Than Multi-Family or Fix-and-Flip?

3 min read

Are Hotels a Better Investment Than Multi-Family or Fix-and-Flip?

There’s no shortage of opportunities to invest in real estate—so why zero in on hotels, in particular? It’s a question we get asked regularly here at EquityRoots. Truthfully, of all the myriad ways to add real estate to your investment portfolio, hotels are among the least commonly discussed. Why is it, then, that we would offer our investors the opportunity to enter so specific a niche?

Before we answer that, we’ll offer the disclaimer that yes, there are many people out there who make money off of multi-family properties, fix-and-flips, and other real estate opportunities. By no means are we suggesting that these ventures cannot be fruitful. All we are saying is that, if you put all the pros and cons on the ledger and really think it over, you just might find yourself agreeing with us that hotel investments are uniquely promising and distinctly advantageous.

Real Estate Investment 101

To understand what makes hotel investment so loaded with potential, you’ve first got to understand some of the basics of real estate investment. Let’s break it down to the simplest possible level—the most basic concept of real estate investment. When you buy a home, an apartment building, or a hotel—property of any kind, really—you have to understand that it’s not going to make any money just sitting there empty. To generate a profit, any real estate investment is going to have to have tenants. You’ve got to have warm, rent-paying bodies in the building for it to be a moneymaker.

So now, consider the rent-generating potential of a hotel versus other forms of investment. With a hotel, you’re generating rent money night by night. With most anything else, you’re talking about a month-to-month or even year-to-year lease.

It boils down to simple mathematics, then: With a multi-family unit, you may generate $1,200 per month. With a hotel, it may be $69 per room per night. Now, in some cases, the hotel may not come out on top—and there are other factors to consider, such as hotel maintenance expenses. But if the hotel’s in a good market, it’s got good management, and it’s associated with a good brand, we’re willing to suggest that much of the time, hotel investment is going to be uniquely lucrative.

EquityRoots - Hotel Real Estate Investments Platform

The Logistics of Running a Hotel

We mentioned that there are some hotel maintenance expenses to take into consideration, and indeed there are. For instance, you’ll have to have someone come in and clean the rooms and provide other upkeep services, which naturally eats into the hotel’s overall profit margin.

But even operationally, hotels offer some unique perks over other real estate projects. For example, with a hotel, there’s no concern over delinquencies or renters who simply won’t pay their fair share. You also don’t have to face the worry of your property being vacant for a long stretch of time; again, assuming the hotel has a good market, a good leadership team, and a recognizable brand, you can feel confident that there are going to be tourists and travelers paying for rooms.

Investing with EquityRoots

But all of this underscores the big reason why hotel investment is, comparatively, a fairly seamless and accessible investment: When you invest through a platform like EquityRoots, you’re not actually signing up to run the hotel. You’re investing in an experienced hotel management team with a peerless track record and a trustworthy flag on its pole. In fact, EquityRoots has sufficient clout in the hotel industry that we can gain access to The Big 4—Marriott, Hilton, IHG, and Hyatt.

Those brands aren’t available to just anyone—not even investors with huge wads of money or a few years of actual hotel experience. They only trust their coveted name recognition to truly seasoned, expert hoteliers—and EquityRoots is proud to be on that list.

The bottom line: An investment with EquityRoots is smart. We know the hotel business. We choose promising markets and ensure that our hotels are well-run and that they offer brand recognition. All the pieces are in place for a robust, fruitful real estate investment.

Learn more about it by contacting EquityRoots today!

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