Joint Venture – The cooperation of two or more individuals or businesses—each agreeing to share profit, loss and control—in a specific enterprise. This is a way for companies to partner without having to merge. JVs typically are taxed as a partnership.
Lifestyle Brands – Prescribed franchised products that are adapted to reflect current trends.
Limited-Service Hotel – Also known as select-service or focused-service hotels, limited-service hotels have rooms-only operations, (i.e., without food-and-beverage service) or offer a bedroom and bathroom for the night, but few other services and amenities. These hotels often are in the budget or economy group and do not report significant food-and-beverage revenue.
Loan Servicing – The administration aspect of a loan from the time the proceeds are dispersed until the loan is paid off. This includes sending monthly payment statements and collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance (and managing escrow and impound funds), remitting funds to the note holder, and following up on delinquencies.
Loan servicers are compensated by retaining a relatively small percentage of each periodic loan payment known as the servicing fee or servicing strip. This is usually 0.25% to 0.5% of the periodic interest payment. For example, if the outstanding balance on a mortgage is $100,000 and the servicing fee is 0.25%, the servicer is entitled to retain ((.0025 / 12) x 100,000) = $20 of the next period payment before passing the remaining amount to the note holder.
Loan servicing trades in the secondary market much like mortgage-backed securities. The valuation of mortgage servicing is similar to the valuation of MBS IO strips. Servicing strips are subject to a great deal of prepayment risk and tend to show negative convexity.
Loan Term – the time-frame during which the loan will be paid off; the loan matures at the end of the term, forcing the owner to pay the remaining balance; this is different from the amortization period; a loan can be amortized over 25 yrs, but may have only a 5-yr term in which case the balance on the loan needs to be paid at the end of 5 yrs (typically paid by refinancing the loan);
LTV – Loan-to-Value – the percentage of the loan to the overall property value; the value may be the purchase price, the development cost, the appraised value, or the current value + renovation costs; typically between 60% and 70%; = loan ÷ value
Location Segment – Location segments are hotel classifications driven by physical location. Chain management has provided us with location classifications for a significant number of hotels. Location segments are:
– Urban – A densely populated area in a large metropolitan area. (e.g. Atlanta, Boston, San Francisco, London, Tokyo.).
– Suburban – Suburbs of metropolitan markets. Examples are Sags Harbor and White Plains, New York, near New York City, and Croydon and Wimbledon near London. Distance from center city varies based on population and market orientation.
– Airport – Hotels in close proximity of an airport that primarily serve demand from airport traffic. Distance may vary.
– Interstate/Motorway – Hotels in close proximity of major highways, motorways or other major roads whose primary source of business is through passerby travel. Hotels located in suburban areas have the suburban classification.
– Resort – Hotels located in resort areas where the primary source of business is from leisure destination travel. Examples are Orlando and Lake Tahoe, California.
– Small Metro/Town – (North America only) Metropolitan small town areas with less than 150,000 people. Size can vary dependent on market orientation. Suburban locations do not exist in proximity to these areas.
Lose-it Rate – The rate of which a hotel would be better off leaving a room unsold than to sell at that particular rate. For transient individual reservations, it is usually called a “hurdle” rate in an automated revenue management system. In non-automated revenue management, it is usually termed the “Group lose-it rate” because the complex calculation is only done for groups where the revenue result can have a major impact on the hotel revenue.
Author: Derek Martin