Members of IREFAC said the health of lending markets and the success of pending mergers could affect the success of the hotel industry.
NEW YORK CITY—Members of the Industry Real Estate Finance Advisory Council made some bold predictions for the hotel industry in the relatively near future while speaking at the 2016 NYU International Hospitality Industry Investment Conference.
Like so many in the industry are doing, the members of IREFAC speculated on the ultimate effects of the recent wave of consolidation in the industry.
Jackson Hsieh, vice chairman for real estate at Morgan Stanley, said several companies need to make a move to not fall behind as Marriott International nears a merger with Starwood Hotels & Resorts Worldwide and AccorHotels works to close on FRHI Holdings.
“The people who still have to do something are InterContinental (Hotels Group) and Hyatt (Hotels Corporation), but the real wildcard is Hilton (Worldwide Holdings),” Hsieh said. “They haven’t acquired other companies under Blackstone’s ownership, and they seem to believe they can create new brands from scratch.”
“Eighteen months from now, the biggest fear will be how good Marriott can make the acquisition of Starwood,” he said.
Michael Murphy, head of lodging and leisure capital markets for the First Fidelity Mortgage Corporation, said the distribution aspects of the merger make for an interesting history lesson for hoteliers.
“Decades ago, we mocked the marketing people who came in talking about shelf space,” he said. “We said they didn’t know what they were talking about. It turns out they were right; they just didn’t know why.”
The return of financing
The first quarter of 2016 was marked by a pronounced slowdown in lending markets, particularly with commercial mortgage-backed securities loans. Lenders are now showing signs of life, IREFAC members said, and that bodes well for the industry.
“It’s a better time to borrow than people thought,” said Stephen Plavin, president and CEO of Blackstone Mortgage Trust. “Borrowing opportunities have been a lot better in the second quarter than the first quarter.”
Michael Medzigian, chairman and managing partner of Watermark Capital Partners, was decidedly less optimistic about the lending environment.
“We’re borrowing a series of loans right now, and it doesn’t feel so great,” Medzigian said, describing his company as a “conservative borrower.”
Plavin said there are growing opportunities with CMBS lending, but he understands why hoteliers are reluctant to believe that. But that sentiment won’t last forever.
“Borrowers are understandably reluctant,” he said. “People got burned early in the year. But spreads are tightening, and real-estate owners’ memories are short.”
Neil Shah, president and COO of Hersha Hospitality Trust, said he also has seen a better-than-expected lending environment and added he is glad to see CMBS growing stronger.
“I do think the market is better than people fear,” Shah said. “I’m glad to hear CMBS is picking up. That leads to a lot of transaction velocity.”
The transactions market
Investors have taken a keen interest in both the pace and pricing of hotel transactions. Confusion about the latter led to a slowing of the former during the first quarter, but Mark Elliott, president of Hodges Ward Elliott, said that seems to be getting better.
“(The first quarter) was basically a no-bid quarter,” Elliott said. “Capital markets didn’t know where to price things, but 15 March to the day is when pricing discovery occurred.”
He said that’s a good sign for the rest of the year in terms of transaction volume.
“It will be a big year compared to average but not compared to last year,” Elliott said. “The first quarter lagged behind, the second quarter is on pace, and that will probably continue in the third quarter.”