HOTEL
PERSPECTIVES
EDITORIAL ADVISORY BOARD
Arthur Adler
Managing Director & CEO, Americas
Jones Lang LaSalle Hotels
A Quarterly Supplement
AUGUST 2008
Sumner A. Baye
President/Partner
International Hotel Network LLC
ews watch
Monty J. Bennett
President & CEO
Ashford Hospitality Trust
Credit Crunch Cripples Massive Las Vegas Project
With the financing marketplace at a standstill, Boyd Gaming Corp. late last month
abruptly halted construction on its $4-billion Echelon project on the Las Vegas Strip.
In its second-quarter financial report, the Las Vegas-based gaming enterprise stated
the move was undertaken “due to the difficult environment surrounding today’s capital markets and the challenging economic conditions that currently exist.”
However, the company reiterated it would restart construction when circumstances improve. As of June 30, Boyd had spent roughly $500 million in capital
costs related to the project, which was planned to encompass 5,000 rooms in five
hotels. In its Q1 financial release, Boyd stated that foundation work had been completed on three of its wholly owned hotels—Hotel Echelon, the Enclave and
Shangri-La Las Vegas—and that the development was proceeding according to
schedule and on budget. A late 2010 delivery date has been targeted.
The delay may cost Boyd its partnership with Morgans Hotel Group. The two
had teamed up in 2006 to develop two hotels, a Mondrian and a Delano, within
the 87-acre development. MHG has said it is unlikely the JV will secure favorable
financing by the Sept. 15 deadline. Therefore, the company “does not intend to further extend the joint venture agreement on its current terms but expects to evaluate
future proposals relating to the project with Boyd.”
Yet one observer says Boyd made the correct decision in postponing the
Echelon project. Andrew Zarnett, a research analyst with Deutsche Bank, writes
that the delay will staunch further cash outflow during these tough economic times
and keep a lid on leverage levels. “This was the right decision but a hard one for
the company,” Zarnett maintains. “While a great amount of money had been
spent, the importance of stopping the project is that management has illustrated
they are not willing to risk the company.”
James E. Fitzgerald
Managing Director, Hotel Investments
Principal Real Estate Investors
John Hamilton
SVP, Acquisitions & Business Development
Pyramid Advisors LLC
Joel W. Hiser
CEO
Horwath Hospitality Investment Advisors
Kirk Kinsell
President, Europe, Middle East & Africa
InterContinental Hotels Group
Robert Koger
President
Molinaro Koger
Mark Lanspa
Vice President
Goldman, Sachs & Co.
Greg Marcus
SVP, Development
Marcus Corp.
PKF Launches Financing Intermediary
In addition to its advisory, research and transactional services, PKF Consulting has
established a new unit that will aid investors and owners in obtaining financing.
Steve Hanover, a former principal with Sequoia Capital Partners, has been brought
on board as senior managing director of PKF Capital Hotel Finance.
“A very critical part of getting a transaction done is providing financing,”
says Hanover, who is based in San Francisco. With a credit dislocation as a
result of CMBS being sidelined and the troubled economy, he says it made
sense to start the program now.
Acting as an intermediary, the unit will source all types of debt products and
equity if needed, ranging from fixed- or floating-rate financing, mezzanine and preferred equity. Given the current credit crunch, Hanover says he will most likely
approach balance-sheet lenders.
Deal types can run the gamut from refinancings and purchases to construction loans. “We have people that have a maturity date coming up and they
have to replace the old debt,” Hanover details. “We are also working with people who are buying properties and would like to reposition them. Therefore,
they need a form of bridge financing. And we’ve also had quite a few requests
for construction lending.”—Maria Wood ◆
Gary Mendell
Chairman & CEO
HEI Hotels & Resorts
Nelson F. Migdal
Shareholder
Greenberg Traurig LLP
Lori Raleigh
Executive Director
ISHC
Rick Swig
President
RSBA & Associates
Donald W. Wise
Global Hospitality Industry Managing Partner
Johnson Capital
Reprint orders: www.remreprints.com
Enter code F08089
HO TEL PERSPECTIVES IS PUBLISHED IN THE JANUARY, MAY, AUGUST
AND NOVEMBER ISSUES OF REAL ESTATE FORUM.
EDITORIAL INQUIRIES: Maria Wood, mwood@remedianetwork.com
