HREC: 2014 Is Shaping Up As Another Record Setter
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NEW YORK CITY and SAN DIEGO—In light of interest rate increases and a record setting performance by the lodging sector in 2013, one might expect industry participants to be bracing themselves for the next dip.
But instead, the leadership at HREC-Hospitality Real Estate Counselors—the national hotel investment advisory firm—is confidently optimistic.
Here, two executives with the firm tell GlobeSt.com’s Rayna Katz why it’s a good time both for buyers and sellers, what they see ahead and what move would make an investor look like a genius.
GlobeSt.com: What is your role at HREC?
Jake Stahler: I'm a SVP focused exclusively on capital markets assignments. I run the firm’s capital markets practice for the eastern half of the country as co-head of the practice with Mike Armstrong.
Mike Armstrong: My title is principal and co-head of our capital markets practice; I run it for the western half of the country. I am active in property sales and mortgage brokerage on a national level.
GS: What are you seeing in the capital markets for your part of the country?
Stahler: There is a lot of capital chasing deals, so competition from various types of lenders has been intense. That’s not only leading to spread in rate compression but also more attractive covenants from a borrower’s perspective. It’s a good time to be borrowing money.
Armstrong: I’m not seeing a big difference in financing terms in our region. Jake and I work with mostly national type lenders so we’re seeing the same terms. HREC typically works with national, non-recourse lenders. Loan terms are typically the same east to west.
GS: And in the debt markets, is there any tightening?
Stahler: Yes, we are seeing tightening and it’s a result of the increased competition from lenders to put money out. Almost every week it seems there’s a new debt platform being formed so I think we’re in for a good round of heightened competition on lenders. There are substantial debt maturities coming due from 2015 to 2017.
We’re seeing a robust investment sales market, transaction volume is picking up—both on refinancings and sales—but as new lenders enter the market, their margins are getting compressed which is more attractive for borrowers. I think the big question is, what happens to underlying interest rates. I don’t think an underlying rate of 278 on a 10-year treasury [which was the level at the time of the interview] is sustainable.
Armstrong: At the Mortgage Bankers Association conference a few weeks ago, we had twenty plus meetings with lenders of all sorts who were enthusiastic about hospitality. It’s something on most lenders lists. I think we’re up to 37 to 38 conduit lenders and in the last cycle we were at 38 to 40 so the conduit business is back, they’re providing financing for all asset classes. It’s creating competition, tighter LTVs and tighter spreads.
Stahler: The increased competition from conduits drives competition throughout lenders. These are non-recourse lenders. Conduit is still the lowest cost of capital for the majority of non-recourse borrowers.
Next: Hotels Stay Strong
As GlobeSt.com's hospitality thought leader, Hospitality Real Estate Counselors (HREC) provides both a property brokerage and capital advisory perspectives to our readership. For MORE lodging sector insights and analysis, click here.
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