Jones Lang LaSalle Hotels report predicts that $30 billion in CMBS hotel loans maturing in 2012 may be extended, creating an opportunity-rich investment environment

Long considered the most liquid hotel investment market in the world, the U.S. went into a two-year slump in 2009 and 2010 before making a comeback in 2011 with approximately $15.2 billion in transactions. "CMBS loans provide much needed liquidity to borrowers as local and regional lenders are still in the process of repairing their balance sheets, leaving limited capacity, large money center banks and life companies to fund the majority of on-balance sheet loans," noted Bill Grice, Senior Vice President of Jones Lang LaSalle Hotels. The firm forecasts that 2012 deal volume will continue at last year's pace with approximately $15 billion in total transactions, as institutional and foreign investors return to the market while REITs pull back. The unknown factor that could affect the pace of acquisitions is the strength of the CMBS market.

CMBS loans represent about one third of outstanding U.S. hotel debt. With $30 billion in CMBS loans reaching maturity in 2012-many of them on properties valued below their current loan amount-it is likely that many loans will be extended for three or more years, providing additional time for property values to rebound and loans to further delever. In the meantime, the large overhang of loan maturities marks a period of highly attractive investment opportunities for investors who believe that market fundamentals will continue to rebound.

"Given that banks continue to push out maturities to 2015-2017, all eyes will be on how the pricing and appetite for floating-rate CMBS evolves in 2012," said Mathew Comfort, Executive Vice President of Jones Lang LaSalle Hotels. "Swaps and spreads will continue to be volatile during 2012 and investors need to carefully time when to lock in an interest rate."

The availability of equity capital for high-quality hotel transactions is expected to remain high with the re-emergence of opportunity funds, value-added funds and core-plus funds, which typically allocate 15 to 20 percent of their equity to hotel real estate, Jones Lang LaSalle Hotels reported. To mitigate any negative impact of individual asset performance, loan originations may be capped at $100 million, with larger deals requiring a consortium of lenders to spread out the downside risk.

"The overhanging loan maturities create tremendous opportunities for investors seeking to obtain loan-to-own note sales, by reducing costs on the lending side and thus creating real value for both parties," said Jeffrey Davis, Managing Director of Jones Lang LaSalle Hotels. "Recently we've seen an increase in debt sales by lending institutions, particularly note sales, and this trend will continue in 2012 as lenders become increasingly motivated to get paper off their balance sheets."

Debt markets provide strong activity for Jones Lang LaSalle Hotels' financing experts who closed more than $1.1 billion in debt and equity financings, note sales and advisory transactions in 2011. A total of 22 loans encompassing more than 4,000 rooms in assets located throughout California, Florida, Missouri, New York, Ohio, Oregon, Texas and Virginia were secured through various lenders.

Davis, Comfort and Grice, along with Vice President Mike Huth, led the Jones Lang LaSalle Hotels team on the following transactions:

* A $145 million financing of the W Hotel located in Washington D.C. on behalf of Istithmar World PJSC.
* A $59 million financing of the Chase Park Plaza located in St. Louis, on behalf of Behringer Harvard.
* A $51.5 million financing or the SLS Hotel South Beach located in Miami, on behalf of SBE and CIM Group.
* A $42 million refinancing of the Magnolia Hotel Houston located in Houston, Texas on behalf of Stout Street Hospitality.
* A $17 million refinancing of the DoubleTree by Hilton located in Cleveland, Ohio on behalf of The Hotel Group.
* A $12.2 million refinancing of the Sheraton Louisville Riverside located in Jeffersonville, Indiana on behalf of MHI Hospitality.

"As we enter 2012, all of the signs point in the direction of a strong recovery for the lending market," said Comfort. "The hotel sector is moving in the right direction with bank lending driving activity and CMBS lending backing high-quality product with strong sponsorship."