This article is intended to address the legal issues, concerns and decisions involved in complex hotel and mixed-use hotel anchored financing transactions. The article begins with an overview of general real estate financing and capital market concepts ranging from a discussion of the "borrower," the "lender(s)," and the capital structure to the various forms of financing. Next, due to the prevalence of CMBS debt in the hospitality sector, the article contains an overview of CMBS debt and its role in the hotel financing world. Finally, the article concludes with a survey of other financing issues unique to the hotel industry. The article is intended as a primer on major issues and structuring challenges and is intended for an audience with some degree of experience in the subject matter.
II. WHO IS THE BORROWER
A. Choice of Entity
In equity investments, regardless of who provides the equity capital, if the capital is coming from multiple sources, the choice and structure of the ownership entity will likely be an issue. For this reason the choice of entity becomes critical when structuring equity investments. For various tax and other reasons that go beyond the scope of this article, limited partnerships and, more recently, limited liability companies are the most common choices for the ownership entity. In general, these two types of entities tend to maximize tax advantages, provide for limited liability to the stakeholders and allow for maximum flexibility in terms of structuring. Notwithstanding the developer’s desires, more often than not, the choice of entity decision will be driven by the true equity investors, particularly if those investors are tax-exempt entities or funds with taxexempt investors.