The “Extend and Pretend” era is rapidly giving way to “Get Real to Heal,” and this article explores the complexities surrounding workouts of securitized hotel mortgages. Since 2003, roughly $110 billion of lodging mortgage debt has been originated and securitized into Real Estate Mortgage Investment Conduits (REMICs) in the United States, collateralized by slightly over 18,000 lodging properties.
While there has been a new start to CMBS lending and hotel lending in general, do not get lulled into believing it is all sunny and you can easily refinance at 5% or less. There are only a few lenders who are active. Besides capacity issues, as rates have begun to rise, rates for borrowing are rising as well. The CMBS lenders all have capacity issues right now since there still is very limited bond issuance and hotels are only 10% or so of a given pool. Underwriting is still what it should be: tight. Lenders are seeking debt yields of 14%, although there are some deals being done at 12% where the borrower is very strong and the property is very good.
After suffering through the all-time worst year of performance in 2009, U.S. hotel owners and operators are eager for growth. The domestic lodging industry has experienced a definite turnaround in 2010. Considering the drags on the economy such as the depressed housing market, high unemployment, and Federal deficit worries, the swift pace of recovery in the lodging industry has been remarkable. Recently released updated forecasts from Colliers PKF Hospitality Research (“PKF-HR”) reveal that a base has been established for very strong gains in both revenue and profits in the years to come. The near-term future could be that much brighter if certain elements of President Obama’s recent tax proposal are enacted into law.
Some years ago, we coined the term "hotel-enhanced mixed-use" to describe those dynamic mixed-use properties where the hotel acts as the "spark plug" that energizes the entire project.Hotels can be the "ultimate amenity" for mixed-use projects because they can distinguish the project, provide a great driver of traffic, and offer an integrating hub for residential and retail customers.
As U.S. hotel managers began to prepare their 2009 budgets in the summer of 2008 there was a sense that the following year was going to be challenging. The U.S. economy was in recession, gas prices were on the rise, and news of declines in home values and employment were prevalent. Occupancy levels for U.S. hotels had begun to slide, but average daily room rates (ADR) were still on the rise.
Cost-cutting continues to be crucial to owners in the fallout of the Great Recession. At a Lodging Conference panel titled “Owners Talk About Operational Issues,” hotel owners discussed recession-driven ideas such as eliminating room service and daily housekeeping. The perennial issues of brand-owner conflict were also a topic of conversation.
The title of this blog says it all. This is the time and place to be - The Lodging Conference in Phoenix, Arizona. We called it at Meet the Money® in May, 2010, but the tide that started turning at the end of the first quarter 2010 has continued its flow and it seems to be unmistakable now. I expect to hear some very exciting things at the Conference here in the next few days.
The recession may be over from an empirical standpoint, but that doesn’t mean lenders have stopped pressuring owners. Now is the time when the aftereffects of the downturn are really taking hold, leaving many owners struggling to hang on by their fingertips. But there are alternatives to mailing in the keys, according to panelists during a session titled “Hotels In Default: What’s Next?” at the Midwest Lodging Investment Summit this week.
The rewards of buying such loans are substantial, as they usually are sold at a discount—often steep—to the outstanding amount of the loan. The goal when purchasing a hotel loan is usually to obtain title to the hotel as quickly and inexpensively as possible, not to remain as the lender on the loan. However, too often buyers approach a note purchase like they are simply buying the underlying hotel—without adequately analyzing the numerous landmines along the path to hotel ownership. When you analyze whether to purchase a distressed hotel loan and what price to pay for it, it is important to assess all of those risks.
According to George Mason University’s Center for Regional Analysis, the Leading Index for the Washington MSA, which provides a projection of future economic conditions based on an amalgam of indicators, has seen month-over-month increases since the fourth quarter of 2009. While the market lost almost 8,800 jobs between March 2009 and March 2010, D.C. fared better than any of the other top 15 job markets in the country and still has the lowest unemployment rate among this group.
The more things change, the more they stay the same. Both political parties know a winning strategy when they see it. After a year where the principle focus was on health care, the whole focus seems to have shifted to jobs. Little if any time or importance was spent on taxes. However, it just puts more pressure on 2010 because of the expiration of a number of provisions during 2009 and even more at the end of 2010.
What is really happening with the recovery and how will it affect the hotel industry? Insightful perspectives from the experts at Meet the Money®. It is hard to walk down any office corridor or sit in any restaurant in the county and not hear a discussion that boils down to the following: "Thank goodness! The recession is over and the recovery is here!"
Things I heard during breakout sessions, networking events and late-night cocktail conversations held in conjunction with last week’s 22nd annual Hunter Hotel Investment Conference in Atlanta.
Bucks for Bunkers | The Hunter Conference drew about 750 attendees and the attendees are everyday people. They often own and/or operate up to 30 or 40 hotels. Their no-nonsense approach to the business is one of the reasons this is among my favorite industry events.
The hard-learned lessons of 2009 have not escaped some of the top executives in the hotel industry. Just ask Steve Van, president and CEO of Prism Hotels & Resorts. While the industry veteran has always appreciated the talents of his work force, the recession has made him realize just how invaluable good people really are.
The ordeal which the hotel industry currently is struggling through will have significant short- and long-term consequences for management companies and management contracts. Here is our take on the likely new rulebook that owners and operators will work from over the next five to seven years.
ALLEN TOMAN, Principal of Como-based HOTEL REALITY ADVISORS, once again takes Hotel Yearbook readers on a tour d-horizon of the world of hotel finance in the year ahead. Will lenders want to take on additional property exposure when balance sheets have been so badly battered? Will pressure on operators to meet owners’ cost-cutting demands finally ease? Find out here.
Whether you’re downright pessimistic, hedging your bets or completely optimistic, most hoteliers and others involved in hospitality are fully invested in the idea that 2010 will be “better.” This hopefulness is so pervasive it virtually hangs in the air and emanates from nearly every industry, household and corner of our economy.
All types of real estate investments, including hotel facilities, have life cycles that reflect a rise and fall of net operating income during a property’s economic life. A renovated, repositioned or brand new hotel experiences rising occupancy and/or average room rate levels during the first two to five years of operation/ownership. Hotel investors project income and expenses for the first several years of an assumed holding period up to and including a “stabilized” level of business. Beyond the initial years of a hotel’s operation/ownership, a forecast of a “stabilized” level of hotel net income is estimated as a representation of an average annual level of anticipated profit over the remaining economic life of an asset.
The best part of back-to-back conferences at the beginning of the year is they provide a gauge of what’s in store for the months ahead. It was no different last week as the Americas Lodging Investment Summit in San Diego and the Hotel Brokers International annual meeting in Las Vegas provided more than just a glimpse of what’s going on in the hotel industry:
"Realism" was the defining word for the ALIS conference held in San Diego on January 25-27, 2010. ALIS attendance was roughly half or less of last year, and the experts officially declared 2009 one of the worst years for the hospitality industry. They have already thrown in the towel on the industry for 2010, and look to an anemic 2011, with double digit growth in RevPAR after that . . . but we are so far down the hole now, that even double digit RevPAR growth will take years to reclaim the levels enjoyed in 2005-2007.