Related Companies eyeing gov't aid for convention hotel

NEW YORK (Reuters) - Mega-developer Related Companies is hoping for government subsidies and tax incentive financing to help build a 400-room convention hotel in South Florida.

Construction financing for real estate is particularly tough to come by and debt is difficult to obtain for hotel projects in particular because of the volatile cash flow that comes with the daily resetting of room rates.

"That's going to be a tough deal to get done," Related Companies President Jeff Blau said at the Reuters Global Real Estate and Infrastructure Summit in New York.

The hotel, which will use the Hilton Hotels brand, is part of a complex in West Palm Beach called CityPlace. In a press release in March, Related described the hotel as the linchpin of the success of the convention center.

Related plans to work with Hilton to get more capital for the project and work with the city to bring the project to fruition, although no specific plans have been outlined as of yet, Blau told Reuters.

"It is very important to the city that that hotel gets built for the economic rebound of Palm Beach," Blau said. He said the company is hoping for government subsidies and tax incentive financing to build the project.

The U.S. hotel market faced an unprecedented slide in profitability in 2009 as companies pared their travel spending. In recent months, bookings and rates have picked up in major urban markets, but the recovery has been a slow one.

Related is actively scouting out new hotel projects as it examines distressed real estate opportunities. Hotel fundamentals can turn on a dime because room rates are reset daily, a dynamic that can work in an owner's favor in a recovering economy.

"(Hotels) could make for good equity investments," Blau said.

But competition for choice assets remains tight, Blau added. The potential return for a distressed hotel is much lower in today's crisis than in the early 1990s, he said.

While a distressed property purchased in the 1990s might have commanded a 30 percent return, a similar investment today might produce only a 20 percent return, Blau said.

(Reporting by Deepa Seetharaman; Editing by Steve Orlofsky)