Crowdfunding may be one of the hottest trends around, but up to now it hasn’t been relevant in the lodging industry. This could change pretty quickly with a new approach taken by Hard Rock Hotel Palm Springs. Through an arrangement with online marketplace Realty Mogul, the facility has positioned itself as the world’s first crowdfunded hotel.
Crowdfunding has become a popular method to raise capital for projects through the pooling of numerous small financial contributions from the public, usually over the Internet. In the case of Kickstarter and Indiegogo, these contributions don’t necessarily involve financial returns. Crowdfunding is being used differently in projects like the Hard Rock Hotel Palm Springs, AKA Wall Street, and 17John as a way to raise capital from smaller investors with the promise of a making an eventual profit.
While AKA Wall Street and 17John are using the capital raised through their crowdfunding campaigns to do major redevelopment projects, the 163-room Hard Rock Hotel Palm Springs has already been renovated and relaunched. The luxury property, and former Hotel Zoso, opened its doors to guests on Oct. 4. Instead, the Hard Rock’s crowdfunding campaign is looking to raise $1.5 million to fund a spa expansion, a new nightclub, and to attract new entertainment acts.
Potential investors can get involved by visiting Realty Mogul’s online site. There they can review legal documents and due diligence materials, sign up securely online, and, once investments are made, monitor progress through an investor dashboard. The minimum investment is $10,000. Jay Samit, executive chairman of Realty Mogul, told USA Today he estimates that those buying a stake in the property will see a return on investment of 15 to 17 percent over five years.
Samit sees the development as a logical progression of previous growth. Realty Mogul had already crowdfunded more than $100 million worth of commercial real estate and was looking for an iconic hotel to be its first hospitality property, he said. “The Hard Rock Hotel Palm Springs embodies all of the attributes we were looking for in a hotel. It offers a great location, loyal customer base, experienced management, and solid track record.”
From the hotel’s viewpoint, the new approach holds promise across the board. “We think it’s a winning formula for all involved,” said Andy Carpiac of Kittridge Hotels and Resorts, the hotel’s majority owner. He notes that investors get to share in the cash flow and appreciation of the facility, as Hard Rock continues to grow its entertainment resort in the heart of the Palm Springs market. At the same time, the hotel should benefit from a group of sophisticated investors who will become part of a new “owner’s club.”
The thinking is that these new owners, along with their friends and family, are likely to visit their own hotel frequently. “This should drive revenue and profit growth, in turn increasing the value of their hotel investment,” Carpiac said. He adds that the perks for the owner’s club investors are significant, with hotel employees being assigned a group of VIPs to lavish with attention in addition to celebrity guests.
It’s anticipated that a large percentage of the project’s financial backers will be Californians who frequent Palm Springs as a weekend getaway destination. Planners believe investors will enjoy staying in a hotel that they own while getting the VIP treatment from hotel staff. Perks for owners include a 25 percent discount off best-available room rates, with no blackout rates and up to eight discounted room nights a year per investor.
Other features include expedited check-in, champagne-and-cheese room service, room upgrades, and free use of a luxury owner’s cabana in the pool area. Owners will also enjoy $50 per year in food and beverage credits along with preferred restaurant seating.
Carpiac believes that crowdfunding will be a major part of the hotel investment industry in the near future. “It’s a great fit for investors and hotel owners/developers,” he said, pointing to the potential for hotels to attract VIP owners who can frequent their own hotel investments and actually experience and partake in their investment properties.
According to Samit, crowdfunding may be ideal for hotels that get the same visitors year after year, such as those near universities, resort locations, and convention centers. And regardless of location, it offers a new source of capital.
“Investors need to diversify their portfolios, and hospitality is a major sector of commercial real estate,” he said. And an added advantage offered by his firm is a debt business where investors can address short-term capital needs for remodeling or expansion plans. “Crowdfunding is truly a win-win for the hotelier and the investor,” Samit said.