Hotel Transaction Market Down in '09

SAN DIEGO-Due to a dearth of debt and the unwillingness of owners to sell their properties at this time, the lodging transaction market in 2009 will be at a standstill. That was the consensus of a panel discussion held today during the eighth annual Americas Lodging Investment Summit. The three-day event, held here, drew 2,400 attendees and concludes today.

The panel, entitled “Executing Acquisitions After the Capital Markets Meltdown,” was moderated by Michael G. Desiato, vice president and group publisher of Incisive Media’s real estate group, the parent company of GlobeSt.com. On the panel were: Michael P. Everett, executive vice president of Lowe Hospitality Group; Robert Kline, president and co-founder of the Chartres Lodging Group LLC; Michael S. Kosmas, partner, Squire, Sanders & Dempsey LLP; Joseph Long, EVP of acquisitions and development for Kimpton Hotels & Restaurants; and Dan Weede, partner, Alston & Bird LLP.

Although the topic was how to undertake acquisitions in today’s environment, several of the panelists said they had not done a deal in more than a year. For example, Long said his last transaction occurred 18 months ago. “If people thought 2008 was a slow transaction year, look out, this one is going to be really, really slow.” Long said.

One clog in the system, the panelists agreed, is that properties are currently covering debt service because interest rates are low; therefore, owners are not motivated to sell at this time. Despite talk about seller financing gaining popularity again, several panelists said they had not seen many deals done with that method. “I haven’t seen it yet,” Weede said.

“People who are selling today want to get out of their property for a reason,” Kline said. “They either think it’s going to get worse so they want to sell it if they can get their price. But they are not getting their price so they are hanging onto it. Or they are forced to sell and they need to get it off their books. So there really isn’t the motivation right now for owners to take back financing. There is not that kind of liquidity amongst sellers today that would promote seller financing.”

Everett said there is not of debt available for $100-million deals today, but for transactions under $50 million “there is some level of activity.”Long said the bid/ask gap will close, “when it is lenders foreclosing and then selling assets. Until then, we will be in this paralyzed state from a deal-making standpoint.”

Yet at the current time, lenders would rather extend loans than take over a hotel, several panelists stated. “Lenders don’t want to take properties back,” Kosmas said. “They wouldn’t know what to do with them right now.”Cap rates have also shifted in today’s environment. “We are back to 9%, 10%, 11% and 12%, something like that,” said Long.

However, Kline pointed out that for all-cash buyers, now might be a great time to pick up assets. “If you have the ability to buy all-cash today, it may be a little early right now, but I wouldn’t wait too much longer. There are going to be some very nice profits when the recovery does come,” he said.Long agreed, but noted “there are not many people who are 100% equity buyers. It’s a challenge without any leverage available, other than assumable financing.”