Hotel deals slow as sellers hold on pricing
 
Hotel deals slow as sellers hold on pricing
10 OCTOBER 2016 8:42 AM

The feeling at the latest meeting of the Lodging Industry Investment Council is that owners are still buying and selling hotels, but the push to close on deals has softened.

PHOENIX—Although hotel deals are still happening, the transactions environment today is a far cry from what it was even a year ago.

Members of the Lodging Industry Investment Council met at this year’s Lodging Conference and described the current investment market for hotel buyers and sellers.

The conditions today are choppy, said Michael Cahill, CEO and founder of Hospitality Real Estate Counselors.

“I think our listing levels are about the same as they were last year, but we’re seeing greater fallout in closings mainly due to lack of sense of urgency between equity investors,” he said. “People just aren’t pushing to get the deal closed. It seems they have a number they’ll close or they’re willing to go on. They’re not pushing as hard.”

Michael DeNicola, CEO of Sapient Lodging Ventures, echoed Cahill’s thoughts on the lack of urgency to make deals. He said he’s seen sellers unwilling to come to terms with prices coming down, so there are a number of expensive properties out there with prices that aren’t justifiable.

“We may be the highest bidder even, and the seller decides to take it off market rather than sell it or (refinance),” DeNicola said. “There’s no pressure to sell, but the pricing is really not there based on the income.”

There are fewer people sitting at the 10% to 15% premium level, said Jan Kuehnemann, VP of capital transactions at FelCor Lodging Trust.

“You don’t have as much competitive pressure up there, but they’re still up there,” he said.

The bid-ask gap is still far off, said Ted Arps, SVP of business development at Davidson Hotels & Resorts, but his company has still managed to complete five acquisitions this year.

“All of them, we were not the high bidder,” Arps said. “So (stay) around the hoop and it comes in line.”

Still making deals
There’s still a lot of liquidity for strategic buys in gateway markets, said Rob Stiles, principal and managing director at RobertDouglas. Realistically speaking, pricing on assets peaked in 2015, he said.

“So prices are down a little bit, 5% or something, on average,” he said. “Buyers are much more accepting of lower prices, and sellers, they just need a little more time.”

One-of-a-kind, iconic hotels in the top 25 markets will always find their spot in the marketplace, said Rick Frank, principal at Frank Solutions. Those types of properties around the country will still achieve premium prices.
Foreign capital is still looking for assets stateside, said Guy Maisnik, partner and vice chair of the Global Hospitality Group at Jeffer Mangels Butler & Mitchell.

“It’s still in demand,” he said. “We still see it pretty strong.”

Some repricing of yields are the result of lengthening in the market, said Grant Sabroff, SVP of business development at Concord Hospitality Enterprises.

“I think that’s going to create some opportunities from strong sponsors,” he said.

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