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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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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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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The Benefits of Modular Construction

3 min read

Photograph of modular construction

Modular construction is revolutionizing building construction, especially in the hotel industry. Instead of having to build the entire hotel from the ground up, modular construction pushes most of the construction to happen off site. This type of construction is incredibly appealing, especially to first-time hotel investors looking for a smart real estate investment.

Historically, the construction for a hotel development occurs on-site. All your raw materials are delivered to the site, where they are assembled by various tradesman and sub-contractors. The foundation is poured and the framework is built. Each floor is set up, and individual rooms are then constructed and finished as mechanical, electrical, and plumbing systems are established.

So what does modular construction offer? Modular construction refers to the modules that are constructed off site and then delivered to the construction site to be connected together. In the case of hotels, this often means that each room is built as a module off site. The rooms are shipped to your construction site and then the rooms are hoisted and stacked and sealed together, very much like legos. Instead of building your entire building from scratch on-site, you are able to construct your hotel into smaller sections that are later placed together. There are numerous benefits to modular construction, including:

Efficiency

Hotels benefit disproportionately from modular construction because most of the guest rooms are essentially the same and easy to replicate. By having most of the construction take place off-site, hotel developers often save time and money in the actual on-site construction, since the rooms are already built. In addition, because of reduced construction time, there are potential savings associated with construction financing being a shorter term. There are also actual material savings using prefabricated modular construction. The repetitious nature of modular assembly allows carpenters and tradesman to bring material wastage down to a bare minimum. Additionally, construction traffic delays are shorter, and your development timeline is shorter, allowing you to make it to opening day and realize a return sooner. There is probably a good chance that a prefabricated construction company is able to buy lumber, steel, plumbing, and electrical equipment at better prices than most local builders, simply because of their volume and purchasing power.

Quality Management

Mass production allows you to speed up not only construction but also allows developers to have better quality. Modular construction reduces a lot of the variable guesswork in on-site construction from room to room, ensuring that each room’s construction will be consistent and predictable. Even the tiny details like screws and nails go into the exact same place, for each room module. It might also be important to note that indoor factory building doesn’t expose the materials or tradesman to natural elements, especially if you’re thinking about building in a cold or rainy climate. Naturally, the materials stay dry and worker productivity remains high when you’re inside controlled environments.

 

EquityRoots - Hotel Real Estate Investments Platform


Conclusion

We predict that modular construction will only get more popular, and will allow hotel developers to speed up their rate of development without sacrificing quality. Moving ahead, modular construction companies are now even offering to build rooms with your FF&E (furniture, fixtures, and equipment) already built in, so hotel developers have even less to worry about when preparing to open doors and getting to revenue.

Sources:
“Why Build Modular?” Modular Building Institute.

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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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EB-5 Visa Program— A New Way to Improve the Economy

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EB-5 Visa Program— A New Way to Improve the Economy

Since 1990, the EB-5 investor program has gradually increased in popularity in the United States over the years. Initially, not that many people—including prospective foreign investors from China, India and Africa—knew about this glorious opportunity to become a legal citizen of the United States. That is not the case anymore, especially during the last (5) years. The demand for EB-5 visas seems to have reached new heights considering the huge spike in new hotel and real estate developments and crowdfunding platforms operating in the United States. In addition, a lot more real estate developers and issuers have been actively pursuing foreign investors overseas by flying out to promote their project proposals in person. As a result, there has been an increase in applications for EB-5 visas— which led to a cap of 10,000 applications being set in the United States.

What is an EB-5 visa?

The EB-5 visa program is a process that allows foreign immigrant investors to become permanent legal residents of the United States by performing and satisfying certain conditions. If these conditions are satisfied, that particular immigrant investor will receive a visa (equivalent to a green card) that will allow them to live in the U.S. To be eligible for an EB-5 visa, the immigrant investor must invest at the minimum $500,000 in a Targeted Employment Area (high unemployment or rural area) or $1 million in a new commercial entity that produces a for-profit business.

Furthermore, through this investment, there are more conditions that need special attention from prospective foreign investors. First, foreign investors should be aware that they must be able to demonstrate that their investment created or preserved at least 10 full-time jobs for qualified employees within the United States. Secondly, if foreign investors can provide proof that 10 full-time jobs were created within two years, the investor and his family (spouse and children under the age of 21) will be eligible to have the temporary restrictions removed from their status and to become permanent residents of the United States.

EquityRoots - Hotel Real Estate Investments Platform

What’s so special about the EB-5 visa?

In addition to being a proven foreign investment program, the EB-5 visa program has the potential to inject some life into the United States economy as well. For starters, the money associated with the million dollar investment will contribute to the funding of new business entities in the U.S. In addition, these respective foreign investors will own a share in that particular project or company they choose to invest in. And lastly, there will be an influx of jobs into the U.S. economy— thus allowing for the unemployment rate to decrease and for the Americans to sustain their quality of living.

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