Law Office of Henry B. LaTorraca Civil Trial Attorney

Growing willingness among lenders to fund hotel building

Commercial real estate investors in California have significant opportunities in the hospitality industry across numerous markets. Revenue per room growth at hotel properties coupled with an increase in demand has opened up lending for new hotel developments in strong markets. Although lenders continue to be conservative about property valuations, they could make loans available to developers with solid business plans.

Positive numbers across the industry have enticed lenders to invest. According to a report from PwC, revenue per room increased in 2014 following a 5.4 percent increase in 2013. Projections for 2015 included a 7.4 percent increase in room revenue and occupancy rates as high as 64.9 percent. An occupancy rate that high has not been recorded since 1984.

Two of the leading factors driving demand for hotel rooms are high corporate profits and the tastes of the millennial generation. Higher travel budgets for corporate staff have increased bookings of groups of 10 or more people. This source alone provides about one-third of occupants within the hospitality industry. Next, millennials favor upscale lodging with plenty of technological support like WiFi and mobile check-in. Investors that identify strong markets for these two classes of traveler could succeed in obtaining funding for hotel developments.

A person putting together a large commercial real estate deal typically needs advice and service from an attorney. Issues such as purchasing land, drafting contracts and investigating zoning and environmental regulations all fall within the purview of legal professionals. Negotiations needed to develop contracts and obtain building permits might also be supported by an attorney. Furthermore, an attorney could review an investor's exposure to liability when obtaining a loan and hiring builders. Agreements that establish the obligations among multiple investors could also be prepared by an attorney.

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