Value-add Hostel Investment in Miami Beach with Targeted Investor IRR = 27%
Property type: hostel with 400 beds
Room capacity: 80
Bed capacity: 400
Location: Miami Beach, Florida, USA
Investment Type: Value Add
Targeted Investor IRR: 27%
Targeted Equity Multiple: 2.87x
Targeted Investment Period: 5 years
Total Price: $32,194,000
Investor (Limited Partner) Equity: $11,268,000
(35% Equity to Total Price ratio)
General Partner Debt: $20,926,000
(65% Loan to Total Price ratio)
Targeted Cash Distributions for the first 5 years: average 15% annually
Distribution Period: Quarterly
General Partner (owner and operator of a leading international hotel/hostel chain) acquires a 80-room Hotel, which is prime located in Miami Beach (Florida). General Partner plans to renovate the Hotel and convert into a Hostel with 400 beds.
The proposed investment opportunity is to acquire an equity interest in a limited partnership, which will own a 80-room Hotel in Miami Beach, Florida.
The acquisition price of the Hotel is $26,000,000. The renovation budget is projected to be $3,390,000, working capital is projected to be $724,000, and closing costs, acquisition fee, syndication fee, and referral fees are expected to be $1,742,000, for a total cost of $32,194,000.
The Hotel purchase as well as its renovation and conversion into the Hostel will be financed with a loan projected to total $20,926,000 (General Partner Debt), i.e. 65% loan to total cost ratio. $11,268,000 will be raised from the Investor (Limited Partner), i.e. 35% equity to total cost ratio.
The targeted IRR to the Investor (Limited Partner) after distributions and fees to the General Partner and its affiliates is projected to be 27% with a cash equity multiple of 2.87x based on an exit cap rate of 7%, which is in-line with current market cap rates for comparable properties.
The projected cash distributions for the first 5 years of the investment average 15% annually.
The expected term of the investment is 5 years.
General Partner will operate the Hostel for the duration of the term and will form a limited partnership entity as the General Partner.
Returns will be distributed to the Investor in the following manner:
• Firstly, 100% to the Investor (Limited Partner), until the Investor has received an IRR of 10%;
• Secondly, 20% to the General Partner and 80% to the Investor (Limited Partner), until the Investor has received an IRR of 15%;
• Thirdly, 30% to the General Partner and 70% to the Investor (Limited Partner), until the Investor has received an IRR of 18%;
• Thereafter, 40% to the General Partner and 60% to the Investor (Limited Partner).