LOS ANGELES—Dead in the water at the end of 2011, the transactions market’s sails are beginning to billow with gusts of wind, deal experts said during a hotel acquisitions outlook panel this week at the Americas Lodging Investment Summit in Los Angeles.
They are apt to find good deals as many properties are still trading at a discount-to-replacement cost, said Kevin Mallory, senior managing director at sales advisory firm CBRE Hotels.
“There’s a window of opportunity for the non-public buyer to do some things,” he said.
These buyers will find investment opportunities on the coasts with upscale properties, Mallory said.
Value-add, full-service hotels, including those in Chicago, might be available, too, the panelists agreed.
Sellers include private-equity and balance-sheet lenders. Special servicers appear to be holding on for now.
And there likely will be new buyers looking to carve off their slice of the pie, said Louis Stervinou, managing director of Eastdil Secured, a real-estate investment banking company. Asian capital in particular is targeting the United States, he said. As revenue per available room continues to grow, uncertainty, which was holding some buyers back, will leave the market, he said.
Asian buyers are most likely to focus their efforts on trophy assets located on the West Coast and in New York, he said.
“Every cycle you see new entrants coming in,” Stervinou said.
Deal catalysts
There are likely to be deals surrounding distressed assets during 2012, the panelists agreed.
“For top assets, if (lenders) don’t believe they will get good value selling into this market, we will continue to see recapitalizations,” said Robert B. Stiles, executive VP and principal at Cushman & Wakefield SG, a provider of real-estate financial services.
Also, some hotel transactions will be sparked by properties that have fallen behind on their property-improvement plans.
“Brands are getting tough on that,” Stiles said. “That will force deals.”
Where’s the capital?
Of course, if transactions are to pick up, debt will have to play a role, the panelists said. Life-insurance companies provided US$2.5 billion to hotels last year and are likely to be getting their allocations for 2012 soon. If hotels want some of that capital, they will have to act fast.
“They pretty much fill by the middle of the year,” Stervinou said of the life companies. “You’ve got to be there now.”
Stiles added that the life companies probably won’t be active in tertiary markets.
Commercial, mortgage-backed securities deals can be had in secondary markets, though such deals could prove difficult for select-service properties, Stiles said. And international banks are focusing their efforts on gateway markets.
Global investors go to the cities where they feel comfortable, according to the panel. So an Asian investor looking to come to the U.S. most likely would consider an investment in San Francisco, for instance.
Chinese money has proved to be smart, Stiles said. “They are generally not overpaying.”
