Real estate capital raising and syndication
How do I raise capital for a hotel purchase?
Short answer
Many hotel buyers fund the equity through joint ventures with family offices and wealthy individuals, then add debt on top. Investors want to see the market, the operator and the pricing plan. One hotel owner on a panel I hosted said his firm typically partners this way. Many sponsors talk to a securities attorney about how to approach investors.
Who writes the equity checks for hotels
Hotel deals are usually funded with debt plus equity. The equity often comes from family offices and ultra high net worth individuals who invest next to an operator. On a panel I hosted, Bill explained how his firm works. His family company has acquired, owned, operated or developed over 170 hotels in 30 years. He said his team put about $75 million of equity into hotel acquisitions in one year.
"We typically partner with other family offices and ultra-high-net-worth individuals in joint venture structures to do so."
That is the model I see most often. A sponsor finds the deal, an operator runs the hotel, and outside investors fund the equity in a joint venture. At Family Office Club we have spent years putting sponsors in front of these investors.
Bill and four other firms describe how they buy and fund real estate, including hotels.
Summary and key takeaways from this video
What investors look at on a hotel
A hotel is an operating business, not just a building. Investors want proof that someone can run it. Bill's firm does eight to twelve hotel acquisitions a year, and the panel kept coming back to revenue management. One panelist said hotels now price by the minute and that his team hired people out of MIT for the quant work. His advice was to look at who builds the pricing models before you back an operator.
Here is what I would have ready before a first call:
- The operator's track record and the team that sets room rates
- The size and type of hotel, since this panel's range ran from a 650 room property at Disney to a 10 room boutique in Nantucket
- Your view on Airbnb, which one panelist said affects hotels but not the way Uber affected taxis
- How the deal was found and why the price works
Deal access comes from relationships
One panelist said everything his firm buys is off market, because that is the best way to get pricing. Off market deals come from people who know you. Grant made a similar point to me about brokers. He said there are one or two brokers in every market who control it, and that their opinion of you counts.
Grant explains why relationships with brokers matter when you compete for real estate.
Summary and key takeaways from this video
So build your broker and operator relationships early. Investors will ask how you source deals, and a clear answer helps.
Expect diligence and securities questions
Serious investors will review your paperwork. That includes appraisals, titles, mortgages, leases, easements, material contracts, insurance and employee matters. A hotel has a large staff, so investors may ask about the employee side. Many sponsors get these documents in order before they ask for money.
This checklist shows the kinds of records an investor may ask for during due diligence.
Summary and key takeaways from this video
Raising money from investors involves legal considerations that vary by situation. Many sponsors talk to a securities attorney about how to structure the raise before they pitch. I am not giving legal advice here.
What I have said on this at our events
One point I would add is about collateral and materials. If a sponsor is tempted to put their whole net worth at risk or personally back something that can blow them up, I would think hard before doing it. I would raise the money more slowly instead. But if you can find moderate to strong collateral that does not wreck everything when a deal goes sideways, you can often raise more capital with it in place. Also, the more you raise and the more sophisticated the investor, the more detailed and the more concise your materials need to be.
"If you collateralize your whole net worth or personally guarantee that stuff where it can blow you up, I would not do that. I would raise capital slower and just not do that. But if you can find some type of collateral, a moderate to strong type that doesn't blow up everything in case things do go sideways, you'll raise a lot more capital if there's collateral in place."
"The larger the amount of capital you raise, the more sophisticated and in-depth your materials will need to be. The better your materials, the faster the capital raise will go. And the more sophisticated the investor, the more detailed your materials need to be, and the more concise your materials need to be."
Facts and figures
- Bill's firm has acquired, owned, operated or developed over 170 hotels in 30 years.
- His team deployed about $75 million of equity into hotel acquisitions in one year, doing eight to twelve hotel deals annually.
- The panel's hotels ranged from a 650 room property at Disney to a 10 room boutique in Nantucket.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Real Estate Investor Success Stories: Hear from 5 real estate investment firms who have raised $20M+, Real Estate Investor Success Stories: Hear from 5 real estate investment firms who have raised ov..., Grant Cardone How to Raise Capital Through Social Media, Evaluating Deals and Performing Due Diligence | Family Offices Group. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around offering exemptions, public advertising rules and investor verification requirements. Do not use AI to write your own legal agreements.
Where to start
- Write a one page summary of the hotel, the market and the operator.
- Build a revenue management and pricing plan you can explain simply.
- List family offices and high net worth investors who already fund hotels or real estate.
- Gather your diligence documents before the first serious call.
- Talk to a securities attorney about how to structure the offering.
More questions on this
Do I need an experienced hotel operator to raise money?
Investors will ask who runs the hotel. The panel stressed operations and pricing, so partnering with a proven operator usually helps your case.
Should I buy off market?
One panelist said off market is the best way his firm gets pricing. Those deals come through relationships, so start building them early.
Can I advertise a hotel investment publicly?
Whether and how to promote an investment publicly is a question many sponsors take to a securities attorney before they start.
Related questions
- How do I raise money for opportunity zone projects?Start with a project that is already well built, then put it in the zone and show investors the real numbers.
- How do I raise capital for a mobile home park?Raise capital for a mobile home park by teaching investors why the asset class works before you ask anyone for money.
- How much should a real estate sponsor charge in fees?A common structure I see is a 6 to 8 percent preferred return, then 20 to 25 percent to the sponsor, with higher splits above a second hurdle.
- How do I raise money for my first apartment deal?Start with the deal, because a good one is far easier to fund than most first-time sponsors expect.
Work through it with the one-liner builder. See all real estate capital raising and syndication resources.