News
Ho Ho Ho For Hotel Ops
December 15, 2011
| The good news for US hotels: road warriors are back in force and for Boston, convention bookings are way up, too. There's capital aplenty to re-fi profitable assets—but financing for new development, not so much. The panel of experts at yesterday'sBisnow Hotel Summit at the Copley Westin clarified the complex hotel industry story. | |
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| Nearly 225 (standing room only) brokers, engineers, developers, and architects joined our expert panelists: Cornerstone acquisitions and development SVP Jim O?Shaughnessy, CBRE SVP and investment sales specialist David McElroy, Carpenter & Co CEO Richard Friedman, Great American Hotel Group principal Robert Greene, AEW managing director Jim Luchars (active in $2.5B in hotel/CRE transactions), and O?Connell Hospitality Group principal Jim O?Connell. | |
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| We snapped Jim O?Shaughnessy (getting ready to make some shadow puppets) who says ?the wind's at our back.? Since summer '10, Cornerstone purchased six hotels, mostly upscale product "unencumbered" by brand management. With occupancy up, Jim says their portfolio is well-positioned for strong RevPAR growth. When buying: he likes barriers to entry, limited supply, and an independent hotel only in markets where consumers favor them, usually in one of the top five CBDs. On the exit: Jim likes enough flexibility to attract big REIT buyers. As another panelist says, ?They always close.? | |
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| CBRE's Dave McElroy (also an event sponsor) says ?11 will end much better than 2009/2010, with his US group selling 100 hotels. But, he says, getting back to the recent ?06 peak of 150 deals will take time. The market needs a more stable world economy and lots more US jobs. After the big dip, the hotel sales market rebounded in early '10 as if someone "flipped a switch," especially for core assets in the top eight markets. Buyers for REITs, that have charters stipulating which hotel brands they can own, zeroed in on those names early last year. | |
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| Prior to the event, we snapped some early birds: WilmerHale?s Keith Barnett with his client (and our panelist) Dick Friedman, a rare independent owner/operator. (Think The Charles and The Liberty here and St. Regis in SF.) For all of them, he says, bookings are strong. He's now developing a high-end, 300-room hotel in DC near the White House. Securing construction financing without cash flow is difficult, but he's confident he'll get it built. Unlike other CRE assets, he says hotels are a business—a risky one. One shoe bomber could deflate occupancy by 10% in days. Building an independent hotel? Make it a monopoly, adjacent to a powerhouse institution, with great architecture, or in a market like NYC where one-offs thrive. | |
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| AEW?s Jim Luchars? group purchased six hotels since summer '10. Not chasing broadly marketed deals, they step in to provide capital or buy a deed in lieu of foreclosure for cash-flow challenged assets. They like the coasts plus busy Chicago and Phoenix. Now, Jim says, the most active buyers have cash and want a three- to five-year hold. Great American?s Rob Greene often works with special servicers who, he says, are more aggressively seeking work-outs, especially in the Southeast. In Boston, he expects any new supply to be in the ?burbs or a downtown adaptive re-use. This year, most rising RevPAR reflects occupancy up with corporate travelers, not rising room rates. | |
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| We found Jim O?Connell (right) continuing the conversation in the crowd. He says buyers can now make deals for less than replacement cost, while sellers may have to accept discounts on cash flow. In ?12, he says Boston demand will finally be strong enough for those long-awaited rate rises, even in the far-out ?burbs. He says independents have to work harder than chains to make a profit on operations and it's more difficult for lenders to get financing proposals through their investment committees. Massachusetts entering the casino biz could be a boon for hotels. | |
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| Event sponsor CBT?s Lois Goodell, Kathy McMahon, and Charles Tseckares (the T in CBT) say hotels are indeed a bright spot for their architecture firm, which has several projects ongoing. CBT recently completed the PGA renovations in Palm Beach Gardens, Fla. (does architecture help your handicap?), the Indigo in Newton, the Mandarin, and the Four Seasons' renovation and addition in Boston. | |
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| Sherin and Lodgen managing partner Ron Ruth (an event sponsor) says half of its 40-attorney staff works in CRE. In ?11,deal flow for a variety of asset types has been substantial, especially in the Northeast, Ron tells us. Next year, he's happy to say, looks even more promising. As for specific deals… client confidentiality, ya? know. |
