23August2016

Hotel Administration 3210

Cornell University College of Business

Principles of Hospitality Real Estate

Fall 2016

LECTURE 1
COURSE OVERVIEW
REAL ESTATE OWNERSHIP AND CAPITAL MARKETS PERSPECTIVE
Introductions
A. Self
B. Teaching Assistants
C. Goals for the Course
D. Course Support: Office Hours, Lab Sections, Blackboard, Communications
Please download & review the lecture notes from Blackboard prior to class
E. Schedule of Lectures, Sections, Assignments
Specifics
i. Please complete the readings before class
ii. In-Class Prelim on Tuesday, October 18, room TBA
iii. The Final Exam scheduled by the University
1. Please contact me by September 29 with any conflicts for the
final exam
I. Syllabus
A. Course Administration
My Assumptions about What you know from HAdm 1210,2210 and 2220 and
from HAdm 1350, 1360 and 2550
My Expectations Class, Lab Sections, and Deliverables
B. Content Course Map (below) and Outline
How Hotels and Restaurants are Financed Capital Structure in Hospitality
Hospitality Investment Decisions - Integrated Real Estate Viewpoint
Hotel and Restaurant Market Studies and Valuations
Property Rights to Industry Growth
Schedule of Lectures, Sections, and Assignments
II. Industry Publications
A. Consider viewing the on-line versions of:
Hotel Business www.hotelbusiness.com
Hotel & Motel Management www.hotelmotel.com
Nations Restaurant News www.nrn.com

Jan A. deRoos, 2016, all rights reserved

III. HAdm 3210 Conceptual Course Map

A. Property Rights Determine Ownership
B. Demand/Supply Interactions Determine Cash Flows
C. Ownership Determines Control over Cash Flows
D. Cash Flows Determine Value, Ownership Determines Who Obtains the Value
E. Cash Flows and Change in Value Determine Returns on Investment
F. Returns on Investment Determine Capital Flows Into & Out of the Industry
G. Capital Flow to the Industry Determines the Growth of the Industry

IV. Capital Structure used for Hospitality Real Estate (The [simplified] Capital Stack)
How does real estate capital get paid? Capital has claims on the cash flows generated by
the property, subject to meeting the operating obligations of the property.
o So, first, pay all operating obligations of the property.
o The remainder (lets call it EBITDA) is used to pay a return to the various
providers of capital. Well go top to bottom in order of who gets paid, from first
to last.

30% to
70% of
capital
here
0% to
30% of
capital
here
10% to
50% of
capital
here

Source of Capital

Comments

Risk & Returns;

Cash Flow Waterfall

Mortgage Debt

Fixed or Floating Interest Rate

Long Term
Secured by the Right to Foreclose

Lowest
Returns
& Risks

Gets Paid
First

Mezzanine
Financing
(Gap Financing)

Floating Interest Rate

Short Term
Secured by an Interest in Equity

Medium
Returns
& Risks

Gets Paid
Second

Equity

Receives Residual Cash Flows

Controls the Investment
Is the Ownership Entity

Highest
Returns
& Risks

Gets Paid
Last

V. Lets take a tour and a course overview.

Jan A. deRoos, 2016, all rights reserved