DALLAS-Depending on where you were and what kind of hotel you owned, sold or managed, 2012 was either a good year for you or a challenging one. Steve Van, president and CEO of locally based Prism Hotels & Resorts, share insights with Amy Wolff Sorter of GlobeSt.com.

GlobeSt.com: Steve, if you had to describe the hospitality industry during 2012 in 25 words or less, how would you do so?

Steve Van: Year of the haves and the have nots; great for owners, operators and franchisors. Mediocre year for brokers, buyers and loan originators. 

GlobeSt.com: What were some of the drivers that led to these trends? You don't have to keep to your 25-word limit for this one.

SV: Because of inflated capital invested in hotel real estate in 2005-2007, “fair-market value” by today's standards is too low. The “extend and pretend” fantasy has effectively unmotivated sellers. For owners, operators and franchisors REVPAR increased solidly around 6%, while supply was constrained to less than one percent and inflation of expenses limited. The gap between maturity of loans and extended loans and loans paid off continued to widen dramatically – and that is a critically important trend that will only increase. Owners and lenders with hotels worth less than the principal of the loan are holding on as long as they can in hopes that next year they will recover more of their value. But the majority of loans due now and more so those coming due that were made in 2004-2006 -- and watch out, also in 2007 -- will not be able to find sufficient proceeds to pay them off.

GlobeSt.com: The thing I kept hearing about during 2012 is "pent-up demand." Is that still in play in 2013?

SV: The “pent-up demand” caused by owners and lenders playing the wait-until-it-gets-better game will continue throughout 2013. But beginning in 2014, pressure from the FDIC, owners of highly rated CMBS traunches and the so far patient franchisors for overdue Performance Improvement Plans should open the deal pipeline considerably.

GlobeSt.com: Is that demand more geographic in nature? Where are some of the "hot spots?"

SV: The demand is geographic. It's in the bank accounts of all the private equity funds and REITs that are struggling to get their funds placed in rational investments. But so far most of them are looking only at the coasts and a few hot spots like Austin, TX, which will soon be very overbuilt. Some really smart money like Starwood Capital is buying pools of top brand select service hotels in tertiary markets for high cash flow returns. A unique hotel boom is being driven geographically by vast areas where small organisms died 500 million years ago and produced shale gas. Look on a map and you will see as many new rooms under construction in these remote places as in Manhattan. But don't expect any institutional money there.

GlobeSt.com: With that in mind, how available is construction financing for hotels these days?

SV: Construction financing is available in New York City and Watford City, ND – it just depends on whether you want international guests or oil field workers. But overall it's limited. Developers should keep in mind that their dream of building a shiny new hotel comes with personal recourse and generally sleepless nights.

GlobeSt.com: What about hotel management—what are the hot button issues there today?

SV: Hotel management is about three major things- NOI, NOI and NOI. Other than the usual challenges of unions, health insurance and finding outstanding employees, the biggest challenge for management companies will increasingly be brand capital requirements because so much has been postponed for so long by so many.

GlobeSt.com: How are investment sales looking in the hotel sector? Are institutional buyers coming back and if so, why?

SV: Institutional buyers are back but frustrated by the lack of institutional product. Additionally west coast hotel prices are being driven up by money from China seeking a safe haven and looking to the future when 300 million Chinese will start visiting Los Angeles and San Francisco.

GlobeSt.com: How is Prism positioning itself to handle these trends?

SV: Prism is focused on giving our owners and investors what they want –the best NOI their hotel can sustainably generate.

GlobeSt.com: And finally – crystal ball time. What will happen in 2013? 

More of the same as 2012. Towards the end of the year acquisition opportunities should began to accelerate in anticipation of the deal boom starting in 2014.