ray’s
HOUSTONCOMMERCIALBUZZ
R ay H anka m e r Hankamer & Assoc, Broker, Houston Contributing Writer
redNEWS Business Round-Up - Hotels
Over Thirty-Five Years in the Business-Ray Hankamer / SW Inns, Ltd./Southwest Hotel Management
capital stack the same? Are the funds coming from the same general sources, and in the same percentages-equity and debt?
rN: Tell us about the projects you have developed.
Hankamer: When we started, the ONLY source of mortgage money was life insurance companies. They stayed on top of supply and demand in the markets where they were active lenders, and kept it in balance as best they could. When local banks jumped in and started making commercial mortgages, willy-nilly construction could explode in the same market, leading to overbuilding, since no one knew what anyone else was doing.
Hankamer: Beginning in 1966, we developed 14 full-service hotels, six limited service hotels, five suburban office buildings, and one apartment project. The hotel brands were Holiday Inns, Hampton Inns, Best Western, Ibis, Ramada, and others. The full-service hotels had banquet facilities, discos, restaurants, coffee shops, and of course hotel rooms. All were in Texas, and most in the Houston area2,440 rooms in all. All were franchised, and built and operated according to the specifications of the licensor. After a while we began operating hotels for others under management contract. rN: How have architecture, design, and construction evolved since you first started developing in this segment? Hankamer: The original franchise concept was to sell a “kit” to a novice who knew nothing at all about building or operating a hotel. This was in conjunction with the Interstate Highway System spanning the US and bypassing all existing tourist court/motel strips on the old national highways. The original Holiday Inn prototype was concrete slab and concrete block construction-all masonry. This made the hotels largely fireproof and soundproof. Exterior corridor hotels were the fashion of the day. Over the years, however, many developers’ equity was swept away with the turn to interior corridor construction for security reasons. This rendered the former design obsolete and the franchisors, to please their travelers, refused to renew expired licenses on the older design. Now hotels are smaller on average, since most elect not to include the once-required food and beverage service, and they are built with “sticks and bricks,” cheaper and faster (but less durable) than allmasonry. rN: How has financing your developments evolved, i.e.is the
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Our financing was simple: equity + a mortgage. Equity came from partners and / or ourselves. The use of second mortgages was rare. The mini-perm did not exist, nor did CMBA (commercial mortgage backed securities). The goal “in the old days” was to get a 20 year mortgage, work hard for its term and pay it off, and then enjoy the cash flow from a “free and clear” hotel. How things have changed! We were able to secure loans ranging from 60-80% of cost going in, depending on personal guarantees or not, and their strength. Today that % may be 50-75%, although as the economy strengthens and lenders become more competitive, they are willing to lend a little more to get the deal. Today, most franchisors just give ten year licenses and most lenders have ten year balloons-or shorter. So if there is still substantial debt at the end of ten years, and you have a brand affiliation or an architectural type or location which has gone out of favor, you have a problem. Stepping down to a lesser brand can erode huge chunks of value with the signing of the new license. rN: How does the availability of good sites compare to “the early days,” and does the cost of dirt still amount to about the same percentage cost of projects now, as then? Hankamer: As the Interstate Highway System went in, at first it was ridiculously easy to get perfect sites for very little money. Look today at all the old hotels along the Interstate. They are in the best locations.