
IS IT TRUE October 21, 2013
IS IT TRUE sources tell the City County Observer that the water department managers ALL have take-home vehicles?…these vehicles are reportedly not just Ford Festivas either?…we’re talking Ford F-150s and bigger, some quad cab trucks?…we wonder why does a water/sewer dept person need a take home vehicle?
IS IT TRUE it has been 3 weeks since we all celebrated the deal made by the Winnecke Administration that is intended to result in a downtown convention hotel in Evansville?…we have been in this position three times before where we waited around for financing to materialize so it is time to start thinking a little beyond the headline numbers and sources of funds and start asking questions about where will these funds come from and what is the probability that this will really happen?…as a reminder the construction cost of the hotel part of the project has been reported to be right at $44 Million breaking down to $7.5 Million from the City of Evansville and $11.5 Million from a group of local investors lead to the table by Bob Jones who serves as the CEO of Old National Bank, leaving $25 Million to come from HCW in some combination of cash and loans?…on the surface this seems like an approach that may really work if the stars align and the cash in the deal is sufficient to satisfy a lender?…we should not let the $44 Million construction cost blind us to the fact that this hotel will not appraise for $44 Million using either the projected cash flows or comparable sales?…the appraisal is expected to land in the $25 Million range making both the City and the local investment group’s dollars completely out of the money on day one?
IS IT TRUE the first hurdle in this financing is up to HCW and their banking partners whomever that may be?…given an expected appraisal of $25 Million that corresponds to HCW’s commitment to the project this makes this a simple loan to value transaction?…if their bank requires a 20% down payment for a commercial property then HCW has to come up with $5 Million, if the requirement is 1/3 the down payment will need to be $8.325 Million?…this is a simple go or no-go criteria. Either HCW has this and is willing to commit it or they don’t?…from all we have heard there is no reason to believe that this will not happen?…funding will certainly come with the contingency that both the City of Evansville and the ONB lead group comes through with all of their money?…it is safe to assume that the City of Evansville will come up with the $7.5 Million as their bonding ability far exceeds this amount?
IS IT TRUE the biggest challenge to success seems to be whether or not Mr. Jones is able to find local accredited investors who are willing to put up a total of $11.5 Million for something that has limited or zero value on day one?…local accredited ($200,000 annual salary or $1 Million liquid net worth) investors will want to know what the return on their investment is and what the exit strategy is?…it has been stated that the hotel cannot be sold by HCW for 5 years so assuming a 7% annual return (appropriate for this kind of risk) and a 5 year exit the $11.5 Million will have to grow to $16.12 Million to achieve that return?…when selling fees are considered this would require that the hotel would sell for roughly $70 Million?
IS IT TRUE a valuation like $70 Million would need an 80% occupancy rate with an average daily rate of over $210 per room?…one thing is for sure and that is the local investors will have to believe that this convention hotel will command rates that are more than double what Evansville currently averages at an occupancy rate that is nearly 50% higher than Evansville has ever achieved?…if the local investment group consists of a very small number of people all of whom are willing to take a giant risk in a project they strongly believe in this has a decent probability of working out?…if this gets cut into very small pieces like 115 investments of $100,000 each the risk of finding the investors increases?…we wish Mr. Jones well in his quest but do point out that it is the private investment dollars that will either make or break this deal assuming HCW is willing to commit to a down payment sufficient to satisfy their bankers?
IS IT TRUE then there is the issue that HCW is only going to own about 75% of the hotel and banks will only consider 75% of the appraisal as collateral?…that means a higher down payment unless the local investors are willing to subordinate their equity to HCW’s debt?…this will be trickier than the headlines and talking heads have lead us to believe?…this all may be possible but the probability indicates this is no slam dunk at all?






