Great Opportunity Exists for Non-Institutional Buyers in Hotel Sector

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While REITs and many private equity buyers remain quiet, opportunities exist for other investors to take advantage of a lodging market ripe with promise.

“There is a small window of opportunity for you,” said Teague Hunter, president of Hunter Realty Associates, to an audience of mostly hotel owners and investors at a breakout panel he was moderating Monday at the Hunter Conference in Atlanta. “Dan, Sam and Russ are limited now.”

Dan Hansen, CEO of Summit Hotel Properties; Sam Reynolds, SVP of acquisitions for Apple REIT; and Russ Urban, SVP of acquisitions & development for HEI Hotel & Resorts were three panelists on the “Buying and Selling Hotels Today” panel, and also three of the most active buyers during the past couple years. Since the stock market tumbled last summer reigniting fears of another downturn, REITs and other private equity players like HEI have remained largely quiet.

With stock prices climbing and the economy holding steady, the panel didn’t sound as if all would remain quiet for much longer. D.J. Rama, the fourth panelist and president of JHM Hotels, said there was a very short window for entrepreneurial and non-institutional buyers to take advantage of a market not bubbling over with cash-rich players like his co-panelists. “We control our own destiny,” he said, “but it’s a very short window.”

Hunter, the moderator of the panel, said now was the time to buy and build in second and tertiary markets. “These guys will eventually get everything in the major markets and when the machine is going again, they’ll be back in secondary and tertiary markets.”

The panel was hard-pressed to pin down current capitalization rates, but in general agreed they were somewhere between 8% and 10%, depending on the market. Hansen, of publically held Summit, said they were buying at between 8- and 10-caps in top 50 markets. Hunter said 9-caps were roughly the average, with 10-plus being found in more secondary cities and closer to 8 in major markets like Atlanta.

On Tuesday during the presidents’ panel, Interstate Hotels & Resorts CEO Jim Abrahamson said lodging would be a “very transactional industry in the second half of the year.” Mit Shah, CEO of Noble Investment Group, added that special servicers and lenders are becoming more active in trying to monetize distressed assets.

Other news and notes from the Hunter Conference at the Marriott Marquis in Atlanta:

• H.P. Rama, the chairman, founder and CEO of JHM Hotels, was honored with the Hunter Conference Award for Excellence and Inspiration. Mike Leven, the president and COO of Las Vegas Sands Corp., presented the award to Rama. Leven and Rama were the impetus behind AAHOA and Rama was the organization’s first chairman in 1991.

• Quote of the conference: “The economy will do well right up until it doesn’t,” said Jim Abrahamson. It drew some laughs, but his point was that the economy is impossible to predict because you can’t “expect the unexpected.” He and the presidents’ panel agreed that even 20 years ago that wasn’t the case. “How things have changed,” he added. “Now we’ve got the 100-year floods happening year after year.”

• Lending was still a big topic and question during the event, but more and more speakers (some from actual live lending institutions like banks) talked realistically about the return of some financing this year. Of course, it now comes with a higher cost and at only 65% loan to value, but it was good to hear that some capital was becoming available. Edward Kobel, president and COO of DeBartolo Development, said he’s “never seen a better debt and equity market, but you have to have a great balance sheet.” (Easy to say with his company’s balance sheet, Mit Shah said in so many words, with his response.)

 


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