LIIC: Deals, capital markets seen healthy
05 FEBRUARY 2014 6:50 AM
There’s a healthy amount of activity going on in both the deals and capital markets, members of the Lodging Industry Investment Council said last week during the group’s general meeting.
Editor’s note: This is the third of three installments covering the Lodging Industry Investment Council roundtable, which was held 27 January at the Luxe City Center Hotel. Monday and Tuesday’s coverage was drawn from a breakout roundtable of seven LIIC members, while today’s coverage includes insight from a larger panel open to all LIIC members.
LOS ANGELES—The hotel capital and transaction markets are healthy and active, members of the Lodging Industry Investment Council said during the group’s general meeting last week.
During a roundtable discussion, which was sponsored by Hotel News Now, several group members reported seeing a robust environment for deals.
Robert Springer, senior VP and chief investment officer at publicly traded real estate investment trust Sunstone Hotel Investors, agreed with Kisielica’s assessment of the market. He said there is more involvement from private REITs and private equity as well as life insurance companies.
“We were definitely seeing in 2013 a lot more equity capital competing,” he said. “There’s more competition out there.”
David Loeb, an analyst at R.W. Baird & Company, said REITs raised a record amount of capital a year ago. “The capital markets are clearly wide open.”
Sam Reynolds, executive VP, director of acquisitions/dispositions and portfolio management at Apple REIT Companies, said he’s noted a proliferation of larger-sized deals coming into the Americas Lodging Investment Summit, which was also held last week.
“There’s still plenty to keep us busy,” he said.
As for debt financing, Anne Hampton, a VP at Wells Fargo’s Hospitality Finance Group, said her bank still looks at trailing 12-month financials during the underwriting process and that debt yield is a big indicator for the lender.
“A lot of lenders are chasing yield,” she said.
So long as lenders stay true to their underwriting practices, this cycle should continue positively for hoteliers, Loeb said.
“Excesses in the financing market could mess up the cycle,” he said. “The lending markets are wide open, but they’re not crazy like ‘06, ‘07.”
In addition to transactions, members also pointed to potential development opportunities.
Paul Ketterer, director at AEW Capital Management, said he believes the cycle still has another four or five years left to run. This would leave enough time to build a hotel and get out before the cycle switches direction.
Commenting on the New York market, Sean Hennessey, founder and CEO of consulting firm Lodging Advisors, said the occupancy rate in the city is still high despite new supply. “There are still customers coming in,” he said, but warned that the market did show some signs of weakness on New Year’s Eve when rates were lower, approximately $189 for the night.
Loeb said that while he believes the hotel sector has “several more years” of growth left in it, he is concerned about possible supply increases.
“It will eventually eclipse demand growth,” he said.
Hampton said there hasn’t been much construction financing done during the past several years, but that might be changing.
“I think we’ll get more knocks on the door,” she said.
Wells Fargo is willing to listen to those knocks for construction debt, but will be selective.
“It is a higher risk profile, lower return on your investment, so the premium has to be worth our risk,” she said.