One of the most common threads of conversation at last week’s ninth annual Fishing for Solutions conference in Grapevine, Texas, that focused on special services and distressed assets in the hotel industry was about a subject few people can put their finger on.
The general belief among the conference’s 125 attendees is there’s a large number of companies and funds with cash ready to buy hotels if and when they come to market, but the amount of money sitting on the sidelines won’t be nearly enough to take care of the distressed assets that will find their way to market eventually. It’s estimated 25 percent of all hotels in the U.S. are facing some sort of distressed situation—whether it be late mortgage payments, full defaults or bankruptcy.
There’s about US$10 billion in cash waiting to buy hotels when they become available, said Tom Corcoran, chairman of FelCor Lodging Trust. I’ve heard estimates of as many as 70 funds existing with the sole purpose of investing in distressed hotels. If that’s true, then Corcoran’s estimate might be low.
To help establish a ballpark figure for the number of funds with a lust for hotels, HotelNewsNow.com has started compiling a list. We’ve confirmed as many as we could, and we know this list is incomplete. View it here. We’re hoping our readers can help fill in the blanks. If you know of funds missing from this list, please drop me a line with some of the details. We’ll keep your tip anonymous, and we’ll do everything we can to confirm the treasure chests with the sponsoring fund and/or company.
Of course, the biggest obstacle for these funds remains the inability to deploy the cash. The transactions market in the hotel industry remains at a standstill as executives everywhere grapple with the inability to attain accurate and trusted valuations. Appraisers are doing a great job trying to establish values, but until assets start trading hands, there’s no real way to determine fair market value.
The government tries to get involved with the Public-Private Investment Program (PPIP) and the Term Asset-Backed Securities Loan Facilities (TALF) programs, but most execs involved with distressed assets and special servicing scoff at the mere mention of the acronyms. Apparently, these programs haven’t been well implemented, and a number of people at the Fishing for Solutions conference were calling for the creation of another Resolution Trust Corporation (RTC), which was a program created in 1989 to deal with the toxic assets borne of the savings-and-loan crisis.
There’s reason to believe the hotel industry’s performance will start improving. According to STR, it was the 48th week of 2008—late November—occupancy, average daily rate and revenue per available room each experienced a double-digit decline during the same week for the first time during the recession. As we get closer to the one-year anniversary, it’s reasonable to expect year-over-year comparisons of those metrics will become more favorable. They won’t turn positive overnight, but a less-worse scenario could be a psychological lift for an industry battered by the economy.
If the industry’s performance becomes more palatable, it could spur into action the important cogs that will get the wheel turning again—lenders entertaining the thought of lending, and buyers and sellers starting to see a little more eye to eye on hotel values.
When that slow process begins, we’ll start to see new owners of big-name distressed properties. The resulting flow of deals could cause a torrent of activity—and I don’t know of anyone who wouldn’t welcome that.