Walton Street Capital, LLC and Molinaro
Koger have formed a company to provide lease guarantees for hotel
investors. The new company will provide lease guarantees for buyers of
hotel assets with standard management contracts in place. The company will
also act as an acquisition vehicle and will pursue transactions ranging
from single hotels to portfolios valued at up to 850 million Euros.
Walton Street Capital, a Chicago-based real estate investment company, has
agreed to fund the equity for these transactions. Rob Koger, President of
Molinaro Koger, has hired managers to arrange the leasing transactions and
engage in property-level oversight.

By leasing European hotel properties, the company will serve as the credit
enhancement between management companies and investors. This will provide
an avenue for closed-end German funds to re-enter the hospitality real
estate market.

According to Mr. Koger, the unique position occupied by the new venture is
important for two reasons. First, most competitive buyers in Europe will
acquire only hotels with leases or long guarantees. Second, many of the
best hotels in Europe are operated by international brands on standard
management contracts, or are owned by hotel groups looking to dispose of
them but unwilling to take back a long-term liability.

“Our work in European hotel transactions allowed us to identify
opportunity within this ownership dichotomy. Profit increases on such
properties can be dramatic in an upturn,” said Mr. Koger.

“We are highly enthusiastic about this venture,” said Brian Newman,
Principal of Walton Street Capital, whose most recent European hotel
transaction was the acquisition, expansion and sale of the Four Seasons
Milan. “Molinaro Koger’s expertise in European Hotels and Pension Funds
positions them to make the most of the available opportunities.”

Equity markets punish European hoteliers for owning too much property. To
solve this, groups such as Accor, Hilton and Meridien have engaged in
significant sale-leaseback programs. However, because both credit rating
agencies and equity analysts now add the potential liabilities back to the
balance sheet, this has fallen out of favour.

“This new venture will provide a credit enhancement to buyers in the
market who require a guaranteed rate of return for hotel investment which
is currently not offered by large hotel chains, or anyone else,” concluded
Mr. Koger.
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