Money, Money, Money… Where is the Money?

It’s not that there are not funds available… 

it is the aversion to risk! 

The IMF is actually reporting that the global economy will exceed expectations in 2011. But, whilst individual and corporate finances may be strengthening, the rebalancing of credit and investment portfolios will be ruled by an aversion to risk.

Most funders/ bankers/ investors have been trying to reduce their exposure to real estate over the last two years, and their blood pressure skyrockets at the mere mention of another non-liquid real estate deal.

Hotel RevPars throughout the European capitals and the major cities of the US are now recovering at levels unseen for the last two years. Yet mixed-use hotel/residential projects that have proved healthy are still experiencing major problems re/negotiating loans with only a minority capable of securing required funding. In general, the weather forecast for the hospitality, leisure and residential tourism industry still reports "frequent showers with intermittent storms" and so, right now, bankers will not be prepared to lend an umbrella until the industry is looking decidedly sunnier.

So, how to attract the money?...

We must start to bet on the duration of the production cycle.  Many projects that were started in 2008 have suffered from a lack of liquidity during 2009-2010 that has resulted in a slow-down or a total halt that will only pickup once the market has fully recovered. This acts as no surprise. We have seen this stop-go situation several times in the last 30 years and the market will pick up (at reasonable levels) within the next 18 months. Therefore, some selected projects restarting now could be ready to be completed by 2012-2013 – a moment in which the market should be in full recovery. The key question is how to assure lenders/ investors that sales and revenue will be there and they will get repaid… and for this, one must go back to basics and trust in three major truths:

• Location, Location, Location
• The power of the brand
• Productivity and return

The best product that unites the above is the Branded Residences. They attract customers with powerful brands, running with operational agreements/ condo-hotels that provide a source of revenue. Additionally, the nature of the business requires them to be in the right location.

From a funder point of view, they provide a higher level of liquidity (being secured by the brand and the market niche) when compared to standard assets. But, most importantly, they grant an additional level of security by bringing a built-in source of revenue. Indeed, even if sales are sluggish in the initial stages, the operation will provide the revenue required to cover payment of at least the interests from day one.

Hence, for Buyers and Investors, the Branded Residences concept provides overall solidity to the project. And, in the same way that the brand serves the final client and the operator, it does also attract the banker/funder as it buffers many of the risk factors.

First Logic understands, implements and manages the Branded Residences concept.