PHOENIX-Despite the general mindset of commercial real estate investors to focus on numbers, two pervasive messages of the Lodging Conference here on Tuesday were more qualitative than quantitative.

Those key takeaways were this: the hotel sector's good times may soon be over—though those suggestions were, of course, challenged by those who remain cautiously optimistic—and relationships are the secret sauce when engaging in hotel transactions.

“This year we surpassed the previous peak for hotel values, which was reached in 2006,” said Stephen Rushmore, Jr. president and CEO of HVS. “Expect continued growth, in the double digits (on a percentage basis) through 2016, then proceed with caution.”

Added Mike Patel, principal, NewcrestImage and 2013 chairman of AAHOA, “The upside potential for hotels is strong, putting pressure on cap rates to go down and interest rates to go up.”

Others in the industry suggest more of a 'don't worry, be happy' outlook. “When things are good, there's always a trend for people to say 'things are going to get worse.' We think it's our job to predict the next bad time, but none of us are that smart, so just enjoy it.”

Asserted Bernard Siegel, principal, KSL Capital Partners, “The pace of growth won't be as strong as the last five years, but real rate growth has yet to occur so there could be some tailwinds.”

Noted David Kong, president and CEO, Best Western International, “Supply is growing at a healthy pace and outstripping demand. I think we have reached our peak, so we need to be cautious and have plans for what's to come. The strategy has to be growing market share.”

To that end, deal makers are busy, and they're seeing signs of a market no longer vulnerable to tough economic times. “The market is getting into a more normal position,” said James Merkel, president and CEO, Rockbridge. “Good projects have a higher likelihood of getting done, versus six to 12 months ago.”

Added Siegel, “Today's market is one of the more stable ones we've had in recent times. It's nice to see the capital market return to normal.”

While some parts of the industry are continuing their strong performance from days past, the market's strength has prompted new pockets of activity to pop up, some industry players noted. “You are seeing some capital being pushed to higher risk spectrums, but I think you'll start to see more development and adaptive re-use deals,” said Dara Friedman, VP, Morgan Stanley Real Estate. “In terms of the core areas, we've seen REITs and other low-cost-to-capital types [of assets].”

And some surprising markets are catching investors' interest, noted Michael Sonnabend, managing member, PMZ Realty Capital LLC-Hotel Finance Group. “We've been doing lots of deals in tertiary markets, places that would Birmingham, AL look like Midtown Manhattan. We've been having success in secondary and tertiary markets where owners and operators have a good handle on the market and they can relate that story to the investor.”

That human interaction is ultimately what drives deals forward, several industry players said—no matter the market cycle at the time of the potential transaction.

“People like doing business with people they like, so relationships are important., It's the right time build deep, wide relationships with clients to get through the next downturn.”

Added Merkel, “There's always a lot of capital, so the difference is the conviction of that capital. Understand what's behind the capital, who is making the decisions and what their goals are.”

He advised attendees, “Allign yourself with a capital partner you'll understand, and if you understand risk the same way, you'll get deals done.”

Instant Insights /

For Hotels, Is the Party Over?

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