In April 2015, InterContinental Hotels Group formalized Formula Blue, its latest Holiday Inn Express brand design prototype. With a design that puts sleep quality, simplicity, and ease of maintenance at the center of its concept, compliance with Formula Blue is mandatory for all future renovations/franchise extensions and new-build Holiday Inn Express properties, which is a first for the brand.
The first full Formula Blue Holiday Inn Express opened in Salt Lake City, Utah in 2015 and another 80-100 hotels opened in 2015 featuring some aspects of the Formula Blue design. Additionally, based on current license agreements, over 200 Holiday Inn Express hotels are expected to go through property improvement plans in 2016 in addition to the 150 that started in 2015. All would be required to renovate to the Formula Blue design.
So what do Formula Blue and CMBS conduit loans have to do with each other? Well, Formula Blue is expensive. According to one CMBS lender, “depending on how updated the property already is … it generally costs $10,000-$25,000/room to get to Formula Blue standards … it ain’t cheap.” That means, for a typical 75-room Holiday Inn Express, the owner would need $750,000-$1,875,000 to comply. Many owners do not have that level of capital on hand.
But with a “cash-out” CMBS conduit loan, the owner could refinance the existing property loan balance and include the costs of Formula Blue into the loan. “We have completed many CMBS loan transactions that include loan proceeds for Property Improvement Plans, primarily for Hampton Inns,” commented Jay Bhakta, Senior Loan Originator at ValueXpress. “I am pleased that we can now extend this program to my clients who need to complete Formula Blue in order to secure a long-term franchise renewal.”