On February 19, 2013, the US attorney's office announced that Jonathan Propp, 48, of McLean, VA, pleaded guilty today to conspiring with others to steal more than $20 million from Host Hotels and Resorts L.P. (Host), one of the nation's largest hotel owners, by executing a series of illegal sales of hotels."
If you didn't attend the ALIS hotel conference in Los Angeles this year, you really missed something! Hotel investment conference attendance is a barometer for the health of the hotel industry. Companies send lots of delegates to these conferences when they are doing well, expect increased business, and are optimistic about the future. By that standard, things are really looking up for the hotel industry in 2013 and beyond!
We are at the beginning of what looks to be a renaissance of "hotel-retail mixed-use" development. Shopping center developers nationwide are exploring the feasibility of adding a hotels to existing retail properties, while others are already implementing plans that have been in the pipeline. Some are adding hotels to the mix for new ground up development. Fueling this trend is research showing that both retailers and hoteliers make huge gains in revenue when they come together in the "hotel-retail mixed-use" environment.
Hotel capitalization rates are stabilizing due to the counter balancing forces of a healthy transaction market, a shortage of product for sale, the low cost of capital and the slowing of net income gains. This article discusses these forces and presents data illustrating these trends. Counter balancing forces at work in the hotel investment market have created a state of equilibrium that has stabilized capitalization rates for the near term. The availability of low cost capital, healthy but not frenzied transaction activity, generally strong and slowly improving hotel operating performance, offset by limited inventory and political and economic uncertainty have resulted in the most stable market environment in recent times. This article, which is published biennially, discusses trends in hotel capitalization rates and provides an outlook for 2013.
The Hotel Purchase Agreement documentation and process is where fortunes can be won or lost. The hotel lawyers of JMBM's Global Hospitality Group® have decided to share some practical tips we have gleaned over the past 25 years from more than $60 billion of hotel transactions. Initially, these insights will be published as articles on the Hotel Law Blog at www.HotelLawyer.com and then they will be assembled into the HOW TO BUY A HOTEL handbook for our "We wrote the book™" series, much like the HMA Handbook and the Lenders Handbook for troubled hotels (see Resource Center at HotelLawyer.com for free copies). Here is our first contribution on the "Buying a Hotel" series...
Los Angeles County is one of the largest lodging submarkets in the United States. A revitalizing downtown area, one of the nation's largest international airports, a diverse local economy, and a significant entertainment presence have contributed to a strong lodging demand rebound following the recent economic recession. The following article provides an overview of three Los Angeles County lodging submarkets that may present short-term and long-term opportunities for hotel development.
Despite inconsistent economic news, increases in lodging demand and property-level net operating income (NOI) have most industry participants feeling optimistic that hotel property values are heading upward. An analysis of the 2011 edition of PKF Consulting USA's Hospitality Investment Survey (conducted in the spring of 2011) sheds some light on the market and transaction factors that are influencing this line of thinking.
The Lodging Conference kicks off tonight at the Arizona Biltmore as roughly 1,500 hotel industry leaders gather for the next 3 days. This is one of my favorite hotel finance conferences of the year, and JMBM's Global Hospitality Group® will be well represented. Senior GHG members Guy Maisnik, Cathy Holmes, Bob Braun, David Sudeck and I will all be here.
Each year I give a state of the U.S. hotel industry presentation at the NYU Hotel Investment Conference. My perspective focuses on values, transactions and capitalization rates. My column this month provides highlights of the assessment. Hotel Values: HVS tracks the value of a typical hotel in the U.S. through our Hotel Valuation Index (HVI). The following table shows the value per room plus the percent change in value from the year 2000 projected out to 2015.
We promised to let you know when Hotel Business® published its coverage of its 2011 Executive Roundtable--Capital Ideas: Financing Solutions For Opportunistic Dealmakers that took place on May 2, 2011 in Los Angeles prior to Meet the Money®. The current issue of Hotel Business® just hit my mail box and the articles covering the Executive Roundtable and Meet the Money® provide some thoughtful reading.
Various publications and articles have widely documented the U.S. hotel sales' slump that occurred in 2009, noting also that the number of lodging transactions increased substantially in 2010. The average price per guest room in Hotel & Leisure Advisors' database of hotel sales increased by 60.9% from $90,326 in '09 to $145,348 in '10. The following commentary breaks down and analyzes average sale prices by property type, highlighting a wide disparity between the average per room sale price of lower-tier hotels in H&LA's database (which have declined between 2009 and 2010) and upper-tier hotels (which have increased between 2009 and 2010).
The dramatic decline in United States hotel operating metrics and asset values during the Great Recession were much more severe than the downturns that took place during the Gulf War nearly 20 years ago and then immediately following 9/11. An analysis of the fundamental drivers of the U.S. hotel business compared with early 2009 demonstrates some of the reasons for the recent turnaround of the sector. While extremely modest, the U.S. economy today is expanding as compared with 24 months ago when it was clearly contracting.
The hotel industry is finally getting some long-awaited good news. Business and leisure demand are rising, and occupancy is increasing. Group pace is picking up, rate cutting has leveled off and hotel financing is starting to become available again. Groups and Funds have raised billions to acquire distressed commercial real estate, including hotels, and many other unpublicized investor groups are ready to get in if the opportunity appears right. I believe there are few who truly wish to buy distressed hotels. What they are looking for is distressed hotel deals.
As a leading global furniture, fixtures and equipment (FF&E) and operating supplies and equipment (OS&E) purchasing firm with offices throughout the globe and active projects in more than 20 countries, we are often asked about how different, or how similar, handling the FF&E needs of hospitality projects are around the world. Quick answer: The ONLY thing in common is that a hotel needs FF&E and that through a process, the FF&E is shipped and installed.
HVS recommends using regression models to measure the impacts of convention centers on their surrounding hotel markets. HVS recommends using regression models to measure the impacts of convention centers on their surrounding hotel markets. These models can provide statistically significant estimates of the net change in new group room nights and changes in average daily room rate caused by convention activity.
There has been speculation on major shifts in the hotel ownership landscape as a result of the current market conditions. Average yearend 2009 hotel revenues are expected to be 17% to 20% lower than the previous year, which may result in net operating income or EBITDA declines of between 30% and 40%, depending on whether the hotel is limited service (lower decline) or luxury (higher decline). Values have plummeted, ensuring that a large percentage—and maybe a majority—of hotels are now worth less than their total debt levels as equity has disappeared.
Lately I have seen some lists that suggest there are numerous hotel acquisition funds with cash and at least three new public offerings in the works for blind pools. However, upon careful examination of these various names, it is apparent that some are not really hotel-focused and some are very narrowly focused. It is not even completely clear that all are really able to make substantial purchases. Clearly, several are real hotel funds with real cash, and they are out looking for good product.
Investors looking to capitalize on bare-bottom prices certainly can peruse the higher end of the market, but unless they have the equity to front the purchase, they’re better off looking through the bargain bin. The lack of debt availability has slowed transactions across the board, but assets priced below US$5 million are changing hands still, according to panelists at the 15th Annual Lodging Conference held at the Arizona Biltmore.
It’s highly unlikely there’ll be many deals put to market for a long time. Major banks will wait until next year when they’ve added enough reserves to take the write-downs to sell real-estate owned property and loans at real market prices. Servicers will slowly sell off REO after foreclosure or deed in lieu, but they’ll be very slow to foreclose because it’s not in the interest of the servicer. Small banks are often in such bad capital condition they won’t be able to take the write-offs. There’s no funding for large deals even if they were to be made available other than for all cash.