News
4 THINGS YOU DIDN'T KNOW ABOUT HOTEL FINANCE
March 26, 2012
| Everyone wants to invest in hotels right now: private equity, REITs, foreign investors, lenders, even the brands themselves. (Ebenezer Scrooge is looking into throwing in a few schillings, too.) At Bisnow's recent NY Hotel Investment Summit, we learned of some trends to impress your friends. . . |
| 1) PRIVATE EQUITY SIDELINED |
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| Square Mile Capital's Nolan Hecht says private equity firms (his company is one) hoped REITs would be sidelined in the hotel world, leaving room for private money to play. Not only did that not happen, he says, but foreign money jumped onto the jungle gym, too (it's more fun when everybody plays); the $750/key acquisition of the Cassa Hotel was by China's HNA. At current pricing levels, private equity buys won't happen in New York for a while, he says, unless it's a value-add or debt deal. Go figure that Square Mile manages $1.7B, mostly debt (it has 100 first mortgage or mezz positions now). Nolan says refinancing debt is still hard to do without paying some of it down, making way for companies to buy debt at $0.60 to $0.80 on the dollar. |
| 2) NOT MUCH GOOD DEBT FOR SALE |
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| Ackman-Ziff hospitality group managing director Mark Owens says there's a lack of quality debt in New York, though, with tons of new mezz players. (People say it's so hard to find good debt, they should start an online debt-finding website. E-Har-mezz Loan?) Everyone wants low-cost, non-recourse construction financing, which is a pipe dream. The best he can do for now is structure 25% to 50% of the recourse to burn off, and that's only if the deal includes a well-capitalized sponsor and completion guarantees. |
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| RLJ Lodging Trust's Jeff Dauray says his firm went public in May 2011 because of the competition from low-cost capital. And yet while it acquired nine properties in the first four months of that year, it bought only one more (a Courtyard by Marriott in Charleston) after the IPO. He says the REIT has been waiting for more cooperative pricing, and the second half of 2012 should be robust. (Robust pricing: signal five or six of the apocalpyse.) |
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| Chartres Lodging Group president Maki Bara's firm's capitalization was reduced by half from its peak (it's now $3B), both by dispositions and reduced valuations. Now, the REIT is building back up. Maki says it's looking to buy early in the cycle in order to reposition and to hit the market as it improves. |
| 3) BRANDS HAVE SKIN IN THE GAME |
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| LW Hospitality Advisors CEO Dan Lesser says institutional capital is getting involved in property enhancements. Sam Zell, for instance, bought Chicago's Elysian and turned it into a Waldorf-Astoria. "He may not know how to buy newspapers," Dan says, "but he knows how to buy real estate." Dan adds that brands are managing capital well with NOI guarantees and co-signing. Hilton co-invested with Sam on the Elysian. And Dan says there's no shortage of branded hotels that look terrible and "need a hug and a kiss." Maki says that's a big source of revenue for Chartres, which has invested $800M in renovations over its 10-year history. |
| 4) LENDERS LOVE BRANDS |
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| Hotel brands are doing just fine. Still, Mark says lenders more than guests are driving demand for flags. He was able to compress the spread on a Times Square construction loan by 150 bps by involving a flag. In another deal he's working on, the client insists on remaining independent, and that has knocked out 60% to 70% of the lending community. That deal may end up structured in a similar way to a sale-leaseback, he says. A special thanks to the fantastic moderator, Arent Fox's Kimberly Wachen (above). |
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| CNY Builders prez Ken Colao (right, with Lam Generation CEO Jeff Lam) tells us he's building double-flagged hotel at 54th and Broadway: a 70-story, 639-key Courtyard Marriott and Residence Inn (one of Marriott's extended-stay brands) that'll deliver December '13. putting up a W Aloft in the Financial District and a Fairfield Inn at the Seaport. |
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| Fidelity National Title's Tim Oberweger (with LW Hospitality Advisors'Evan Weiss and PMZ Realty Capital's Michael Sonnabend) tells us going to an underwriter (as opposed to a title agent that sells underwriters' paper) is ideal for larger deals because it can insure a deal without secondary approval. He also says he's got multiple hotel deals with large escrows. He says that trend is rising as hotel deals are can be fragile. |
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| Cetra/CRI Architecture's Dan Stewart (with All Season Movers'Constantine Siversky) paid homage to John Portman, the architect of the Marriott Marquis, where we held our event and which went up in the early '80s. John popularized multi-level atriums, and the Wikipedia list of his projects is longer than Samuel L. Jackson's IMDB page. Dan says John's stuff was always futuristic, which is perhaps why the monolithic Marriott flagship (almost 2,000 keys) is still chugging. |
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| Well, that and renovations, including a multimillion-dollar one just wrapping up. We snapped the redone eighth and ninth floor Broadway Lounge, inspired by the New Year's Eve ball drop that happens just outside those windows. Each of those six chandeliers has 234 clear glass balls. |
