Maria Wood is senior editor of Real Estate Forum.

LOS ANGELES-The frenzied hotel acquisition market of 2006 may slow down a bit in 2007 due to fewer properties being put up for sale. So said a panel of experts speaking here yesterday at the Americas Lodging Investment Summit.

The session, entitled “The Transaction Outlook: It’s Been a Totally Awesome Ride These Past Few Years. Is a ‘Wipe-Out’ on the Horizon?”, was moderated by Michael G. Desiato, group publisher and editorial director of Real Estate Media, the parent company of and Real Estate Forum. The panelists included: Mark W. Elliott, senior managing director of Hodges Ward Elliott Inc.; Douglass W. Henry, senior vice president of Host Hotels & Resorts Inc.; Joel W. Hiser, CEO, Horwath Hospitality & Leisure LLC; Robert T. Koger, president of Molinaro Koger; Mit B.Shah, president and CEO of Noble Investment Group; and Gary A. Stougaard, EVP and chief investment officer of Sunstone Hotel Investors Inc.

Elliott said that while he expects an active transaction arena to continue in early 2007 as the debt and equity markets remain liquid, the amount of supply for sale will begin to shrink. Therefore, he said that he was “not optimistic” on transaction volume in 2007.With interest rates still low, some owners decided to refinance rather than sell, Hiser said, thereby putting fewer assets on the market.

Koger, meanwhile, said that the actual number of deals will increase, but the aggregate dollar value of those deals will decrease because many large, trophy-type lodging assets have already traded to long-term holders. “The market for highly desirable properties is thinner in 2007,” he said.

Of course, no discussion of sales would be complete without an analysis of cap rates. The consensus from the panelist was that while cap rates on lodging trades are low, they are still better than for other classes of commercial real estate. Koger stated that traditional real estate investors who once shunned the asset class are now gravitating towards hotels because they are searching for “more than a 5% return.”

Koger also said that cap rates for lodging properties “are all over the place,” and that “to be competitive, investors must look at more than cap rate.”

Shah pointed out that with initial cap rates of 4% or 5%, investors are challenged on what their terminal cap rate will be. Noble, said Shah, focuses on value-add opportunities. “If we can’t find ways to create value through operations, ultimately, we can’t justify our investment based on market demand.”

Both representatives from the public lodging sphere–Host and Sunstone–said that it was hard to compete with highly leveraged private buyers. “It’s difficult to buy with [only] 50% leverage,” Stougaard said.

Henry agreed, but said that “when interest rates increase, private equity will recede.”However, Elliott jokingly told the audience not to feel sorry for the public companies because they cannot get “instant gratification” on their acquisitions. If they look at the long term, they will be rewarded for buying, he said.

Stougaard also said that acquisition prices are getting near replacement costs. “Someone is going to say, ‘I can build it for that,’ ” he said.

But Elliott quickly countered, “If you can get the land.”

In reference to the prolific amount of lodging buys made by the Blackstone Group in recent years, Desiato asked the panel if Blackstone decided to sell its lodging holdings, would that be an indication that prices have peaked. Elliott said that Blackstone does not get paid until it sells, and therefore, it would not be an indication of the market. The only question would be how Blackstone disposes of its holdings, either piecemeal or through a public exit, Elliott said, adding that “buying behind opportunity funds” would be a good thing.

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