HOUSTON—Buyers are gearing up for a potential uptick in transactions during 2012, but they also are narrowing their focus in order to generate the best returns, transactions experts said Wednesday during a pre-conference workshop at the Hospitality Law Conference.
Included in this group are public companies, which are now in a better position to issue equity to support hotel deals, the panelists said during a discussion of capital. An across-the-board drop in stock prices, particularly among real-estate investment trusts, hindered deal-making during the second half of 2011.
“We will see more companies issuing equity surrounding deals,” Jonathan Falik, a managing director at Cantor Fitzgerald, said of the REITs.
On the private side of the deal market, there is also a lot of capital on the sidelines across the United States chasing deals, too, the panelists said. This money, however, is focusing on the top seven U.S. markets and looking at a lot of select-service properties.
“The bidding frenzy over institutional-quality assets seems to be focused on a limited number of markets,” Falik said. Headline deal markets such as New York and Chicago seem to be getting the most attention, he said.
At the other end of the spectrum, “broken” hotels also are catching the eye of some investors—provided these properties are not broken too badly, said Richard Rudd, a senior managing director at Allied Advisors.
“Everything in the middle is treated as a commodity … and will be priced accordingly,” Rudd said.
Richard Rudd, managing director, Allied Advisors
Private buyers are most likely to pursue hotels that have no or negative cash flow. REITs, which are under heavy investor and analyst scrutiny with each deal they make, are not as likely to pursue such a route, the panelists said.
There is a lot of price discovery going on as potential buyers kick the tires on possible deals, Falik said.
“These are motivated buyers … they are trying to figure out, ‘Do I have to buy at this price? Do I want to buy at this price? Or do I want to wait until the dust settles?’” he said.
John Bourret, a managing director at Holliday Fenoglio Fowler LLP, said the hotel acquisition market is now divided into the haves and the have-nots. There are big prices being paid in markets such as New York, and there is also a lot of buyer interest in the distressed properties.
But those hotels that fall in the middle are seeing “light bidding and light pricing,” he said.
Also, the reemergence of public companies as hotel buyers has brought about a reduction in pricing, Rudd said. The panelists noted that public companies, particularly the REITs, are under a lot of investor/analyst pressure and will be mindful to not overpay for properties.
“The seller has to make the tough decision on whether to pull the trigger or wait six months,” Bourret said.