Bob Sonnenblick, chairman of real estate development firm Sonnenblick-Del Rio LLC, said if you hit a homerun with a boutique project and it becomes the “hip” hotel, the results will be off the charts, but if you miss, it can be a costly mistake. Like with any segment in the lodging industry, the problem is finding the money to buy or build a hotel to take that chance. That was the consensus during a session titled “Who’s Got Money: Sourcing Debt and Equity” at last week’s Lifestyle/Boutique Hotel Development Conference in Miami Beach.

“Traditional lenders just don’t exist now,” Sonnenblick said “And the bank’s first word to you now is ‘recourse.’” The panelists agreed, like in the opening general session, that you needed at least 50-percent equity to borrow and maybe as much as 60 percent.

Josh Heiney, a senior associate with HVS Capital Corp, said boutique hotels can be financed, but you need a captive audience. Finding that, though, is the trick. Sonnenblick thought bigger branded hotels were easier to fund than boutiques, but Paul Adan, of Aguirre Newman America, said financing was almost impossible for any type of hotel. 

John Campo, president of his own architectural firm, said historic and new market tax credits are a great way to fill the equity gap and ideal for adaptive reuse projects common to boutique developments. He said he’s currently involved in three projects and that these incentives can be complicated, but well worth the effort. “New market tax credits give clients a competitive advantage to high barrier markets,” said Campo, who’s based in New Orleans. “There’s a lot of money left on the table. Everyone in New Orleans knows this, but not everywhere else.”

He cited an example showing historic tax credits could provide nearly 25 percent equity and a project taking advantage of both new market and historic incentives could add up to almost a 40-percent chunk of equity, meaning in either example, it could be the difference between breaking ground and being grounded. 

Transactions are also at a standstill: Moderator Jonas Niermann of Hospitality & Leisure Consulting, PricewaterhouseCoopers, said there have only been four hotel transactions in Miami Beach this year, for $186,940 per key, compared to eight at this time last year at $242,244 per key. Sonnenblick said there are billions of dollars on the sidelines waiting for foreclosures, but he expected another year of bloodshed before new deals got going again. He said his firm is buying land now and getting ready for “when the world will be all rosy in three years.”

Lodging Hospitality produced the conference in association with HVS Hotel Management.