complete the IRR of return from The Right Hotel for The Right Market.
EVALUATION OF THE INVESTMENT PACKAGE 311 approved? What is the loan-to-value ratio if you asked for a $400,000 loan? What would be the chances of this loan being approved? 7. What are three key items that lenders focus on when evaluating an investment package? Explain. 8. What are three key items that investors focus on when evaluating an investment package? Explain. 9. ETHICS * After reading the market study from a third-party firm, Ben did not like its negative tone and projected operating results. As Courtlan is his friend and Courtian works for another firm that specializes in market studies, Ben gives the first study to Courtian and asks him to fix it for him. Ben promises Courtlan that if the results are good, he will give him a 1% ownership position in the proposed restaurant as a friendly gesture. Is Ben ethical in doing so? What should Courtian do in terms of being ethical? 10. EXPLORING THE WEB * Search the Internet for firms that perform market studies and appraisals for the hospitality industry. Contact them to find the approximate cost for a market study and appraisal for a 200-room full-service hotel in a major metropolitan city. Concept Check The Right Hotel for the Right Market Nicole Sharp, director of acquisitions for Sahara Hotels Corp., has discovered a promising lo- cation for a future hotel. The subject property is located in a densely populated urban setting and borders the business district in Shepard City. Ms. Sharp is in the process of developing an investment package for potential equity investors and has put together the following fact outline: The location of the proposed hotel is excellent, as it is located in one of the fastest-growing market areas in Shepard, Businesses have been readily moving to Shepard because of favorable tax incentives. Along with increased business development, local hotels have experienced an increase in ADR and revenue per avallable room. The acquisition price of the land will be $3.5 million, with an additional $15 million needed for construction costs for the proposed 197-room property. In total, the project will cost $18.6 million. The city is currently in the process of building a major freeway in front of the proposed build site, which will increase land values and traffic. The hotel competition in the immediate area consists of two major branded hotels and one independently operated property. Competitor A is a budget hotel, Competitor B is a midmarket property without food and beverage facilities, and Competitor C is an upscale independent prop- erty with food and beverage facilities. Ms. Sharp is proposing to build a 197-room upscale full-service property to meet the un derserved business travelers currently visiting the area. The following is a pro forma for the first six years of operation. Ms. Sharp has projected six years because she has set a timeline to sell the property in Year 6 at an 11% cap rate. EVALUATION OF THE INVESTMENT PACKAGE 311 approved? What is the loan-to-value ratio if you asked for a $400,000 loan? What would be the chances of this loan being approved? 7. What are three key items that lenders focus on when evaluating an investment package? Explain. 8. What are three key items that investors focus on when evaluating an investment package? Explain. 9. ETHICS * After reading the market study from a third-party firm, Ben did not like its negative tone and projected operating results. As Courtlan is his friend and Courtian works for another firm that specializes in market studies, Ben gives the first study to Courtian and asks him to fix it for him. Ben promises Courtlan that if the results are good, he will give him a 1% ownership position in the proposed restaurant as a friendly gesture. Is Ben ethical in doing so? What should Courtian do in terms of being ethical? 10. EXPLORING THE WEB * Search the Internet for firms that perform market studies and appraisals for the hospitality industry. Contact them to find the approximate cost for a market study and appraisal for a 200-room full-service hotel in a major metropolitan city. Concept Check The Right Hotel for the Right Market Nicole Sharp, director of acquisitions for Sahara Hotels Corp., has discovered a promising lo- cation for a future hotel. The subject property is located in a densely populated urban setting and borders the business district in Shepard City. Ms. Sharp is in the process of developing an investment package for potential equity investors and has put together the following fact outline: The location of the proposed hotel is excellent, as it is located in one of the fastest-growing market areas in Shepard, Businesses have been readily moving to Shepard because of favorable tax incentives. Along with increased business development, local hotels have experienced an increase in ADR and revenue per avallable room. The acquisition price of the land will be $3.5 million, with an additional $15 million needed for construction costs for the proposed 197-room property. In total, the project will cost $18.6 million. The city is currently in the process of building a major freeway in front of the proposed build site, which will increase land values and traffic. The hotel competition in the immediate area consists of two major branded hotels and one independently operated property. Competitor A is a budget hotel, Competitor B is a midmarket property without food and beverage facilities, and Competitor C is an upscale independent prop- erty with food and beverage facilities. Ms. Sharp is proposing to build a 197-room upscale full-service property to meet the un derserved business travelers currently visiting the area. The following is a pro forma for the first six years of operation. Ms. Sharp has projected six years because she has set a timeline to sell the property in Year 6 at an 11% cap rate
