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The use of Regulation D to raise capital for the development of new luxury hotels through private offerings to accredited investors is a familiar approach, whereby deal sponsors can efficiently solicit capital from accredited investors via the traditional broker-dealer network. My recent article in Real Estate Finance Journal (pdf) discusses how this form of “retail capital” may bridge the gap between what is needed and what is currently available in the traditional debt and institutional equity markets for new luxury hotel development.
The product offering proposed is structured not as a sale of whole real estate ownership in a condo hotel room/unit but, rather, as the sale of an interest in a limited liability company or other private entity treated as a partnership for federal income tax purposes that will (A) indirectly (through its ownership interest in the Hotel Owner Co-Venture) own the hotel (i.e., “Vertical” ownership) or (B) directly own a commercial “condominium unit” comprising a portion of the hotel rooms and enter into a co-venture with the developer-sponsor entity that owns the remainder of the hotel (i.e., “Horizontal” ownership).
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