News for the Hospitality Executive |
Hotel Lawyer with nuggets from JMBM's Meet the Money® 2011
By
Jim
Butler
and the Global Hospitality Group®,
Author of www.HotelLawBlog.com May 12, 2011 For
the most recent update on this topic, click here For
all of our industry friends -- whether or not you were able to attend
Meet the
Money® 2011 in Los Angeles last week -- we will be posting on the
Hotel Law
Blog some of the invaluable information delivered by industry thought
leaders
at the conference. In the coming days and weeks, look for PowerPoint
presentations, summaries of panel discussions and, of course,
commentary. But
today, we will whet your appetite with some sound bites -- nuggets of
insight,
analysis and humor -- from some of the best minds in the industry.
These
are some of the questions that continued to surface through various
panel
discussions and hallway conversations during the conference. For some
pertinent
nuggets, read on. What
is happening now? Jan
Freitag, Smith Travel Research (STR) Transient room demand is back. But at
what cost? It will
take at least a year for group demand and ADR to come back. Coastal markets fell off the cliff in
the 2008 Crash, but
they have come back the fastest. The top 5 "engines of the engine" are
New York,
Miami, Boston, Los Angeles, San Francisco. San Francisco and LA are rocking and
rolling! Luxury is setting the pace for the
recovery. It is
pulling up everything else as it goes. Will finally see real rate growth in
2012. The upper end
of the market will drive the market. Look for double digit or close ADR
growth. New
supply Jan
Freitag The pipeline of new supply is
basically non-existent. Mark
Woodworth, PKF Hospitality Research It will be at least a couple of years
before there is
meaningful new construction. Kevin
Colket, Starwood Capital Group, L.P. Construction will be limited to NYC
and a few markets. It
will not be widespread for at least a while. When
do we hit the peak? Mark
Woodworth Our forecast is for improvement as far
as we can see --
almost 4 years. David
Loeb, Robert W. Baird & Co., Inc. We are still in the early stage of the
recovery and
downside is fairly limited. Mike
Cahill, Co-Chairman of LIIC In an investment sentiment survey of
Lodging Industry
Investment Council (LIIC) members controlling billions of dollars of
hotel
assets, 63% said they believe that hotel values will not peak until
2015 or
later. 39% of respondents believe values will
peak in 2015. 29% of respondents believe values will
peak in 2014. 24% of respondents believe values will
not peak until
2016 or beyond. REITs David
Loeb REITs have both a cost of capital and
access to capital
advantage Rick
Kleeman, Wheelock Street Capital Where capital has come back, is the
public markets. So it
is not surprising that they are buying. REITs are trying to get to
critical
mass. Michael
Cahill, HREC Everyone has REIT envy! Who
is financing? Jonathan
Roth, Canyon Partners Inc. We enjoy being able to play all
throughout the capital
stack with our different funds - ownership, mezz, debt . . . Our value
mortgage
funds provide senior bridge capital without geographic restriction but
we focus
on major markets, and on secondary markets where there are compelling
reasons.
We are now sitting on $1.4 billion of capital, and maybe 25 percent of
that
will be in hospitality. We like doing note acquisitions in
concert with the
borrower. We have been spending time in the
construction lending
business, particularly for the 3 loans about to close. The owner has
owned the
land for long time, ther is no new supply, and there is the ability to
buy back
existing debt at a discount. That lets us adjust the land basis. We are one of the few providers of
construction financing
right now. We have a dedicated team with experience in owning,
operating,
managing and financing hospitality assets. David
Loeb Debt is now available for high-quality
assets in top
markets. Yields are now sub-9%. Financing is not readily available
outside the top 15
MSAs. Construction financing is essentially
unavailable. Rick
Frank, Behringer-Harvard Partners, LLC We are a seller at a 4% cap rate but
not a buyer. We like
to work with JV partners who put in sliver equity. Rene
Theriault, Goldman Sachs Availability is growing for 5-10 year
fixed rate loans
even in secondary and tertiary markets. Good news: there is demand for CMBS
paper backed by these
loans. Now 70% LTV and 10% yield. Full service, limited service. Most
of this
is 5 or 10 year paper. There will be a new push on floating rate debt
soon. There will be more value driven loans
in this area than
cash flow driven. This market was not there 6 months ago but is
evolving very
quickly. Are
market values running ahead of fundamentals? Rick
Kleeman Yes, generally speaking. But this is a
case where asset
prices are pulling fundamentals along with them. I don't think the market is massively
over valued as it
was in 2006 and 2007. These prices are the logical consequence of the
government flooding the market with trillions of dollars. The Fed is managing asset prices
because that improves
the balance sheets of lenders and investors, and when people feel
richer, they
spend. The market is a little bit ahead of
itself, but there are
pockets of opportunity. Jonathan
Roth The Government has provided so much
stimulus that bank
balance sheets are starting to look pretty good. They have not been
selling
assets much to date, but they are starting to sell, and we will see
more sales. How
do you price deals? Kevin
Colket Very limited down side today from this
point. A year or two ago there was no guide
to value. Now there
is a guide to value from REITs, but that is a false friend - the values
have
been high because the REITs have bought the premier assets. People
looking for
the same price will not find it without premier assets. Over the next 12 months, we are
looking for attractive,
unlevered IRRs. People will being to do deals on value - not cash flow.
You
will have to drill down and get comfortable with what will happen to
P&L
for the next 3 or 4 years. Rick
Frank We look at 15-17% as the new 20% IRR
when we underwrite
in our shop. Cap
rates Suzanne
Mellen, HVS Cap rates are down and prices are up. Even though rates are down to historic
lows, the spread
over T bills is still healthy (250 bp). What will happen when T bill
rates go
up? Unless spread decreases, hotel values will go down. Could be a
significant
impact on value. What
are you doing now? Rick
Kleeman We call ourselves a focused
opportunity fund. We have
in-house verticals with experts in each product type. They teach
generalists
like us a lot each day. We have bought and financed 10 hotels in the
last few
months. Early on we did a financing for a REIT - that worked then, but
not
doing it now. Now we are focused on transactions. 3
in California. We
just bought Hyatt in Westlake. This was an asset that we might not have
bought
initially. Very low cap rate, but bought it for about half of
replacement. When
we studied the market more carefully, we liked it more and more. While
Countrywide was big employer, it had not generated many room nights.
JMBM's
Global Hospitality Group® wants to thank all the incredible
speakers and
sponsors who made the 21st annual Meet the Money® a success. Meet
the Money®
has developed a reputation for being the hospitality conference where
high
powered industry leaders get deals done while candidly sharing
meaningful
information and having a great time. This would not be possible without
the
participation of our speakers and sponsors. This is Jim Butler,
author of www.HotelLawBlog.com
and hotel lawyer,
signing off. We've done more than $60 billion of hotel transactions and
have
developed innovative solutions to help investors be successful in
bidding for
hotel acquisitions, and helping investors and lenders to unlock value
from
troubled hotel transactions. Who's your hotel lawyer? ________________________ Our
Perspective. We
represent hotel lenders,
owners and investors. We have helped our clients find business and
legal
solutions for more than $60 billion of hotel transactions, involving
more than
1,250 properties all over the world. For more information, please
contact Jim
Butler at [email protected]
or 310.201.3526. Jim
Butler is a founding partner of JMBM and Chairman of its Global
Hospitality
Group®. Jim is one of the top hospitality attorneys in the world.
GOOGLE
"hotel lawyer" and you will see why. JMBM's
troubled asset team has handled more than 1,000 receiverships and many
complex
insolvency issues. But Jim and his team are more than "just" great
hotel lawyers. They are also hospitality consultants and business
advisors. For
example, they have developed some unique proprietary approaches to
unlock value
in underwater hotels that can benefit lenders, borrowers and investors.
(GOOGLE
"JMBM SAVE program".) Whether
it is a troubled investment or new transaction, JMBM's Global
Hospitality
Group® creates legal and business solutions for hotel owners and
lenders. They
are deal makers. They can help find the right operator or capital
provider.
They know who to call and how to reach them. JMBM’s Global Hospitality Group® The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com. |
Contact:
Jim Butler
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