volume expected for the Americas region.
Jones Lang LaSalle Hotels’
bi-annual “Hotel Investor Sentiment Survey” shows hotel investors’ sentiment for six-month
performance in the Americas increased for the first time following six consecutive semi-annual
declines and, while still negative,
stands at a three-year high.
Likewise, nearly eight out of
10 people who participated in
DLA Piper’s “2010 Hospitality
Outlook Survey” think that current market conditions have created good buying opportunities
for well-capitalized investors, up
from 65 percent in 2009.
The DLA Piper survey,
which measures the attitudes
and perspectives of top executives within the hospitality industry, also revealed that asset
values are expected to stabilize
during the next 12 months; 42
percent of respondents expect
no significant change in hotel
asset values, while 20 percent
expect values to rise, a sharp
contrast to 2009 when 86 percent expected values to decline.
The dearth of hotel transac-
tions over the past 18 months
has created uncertainties regard-
ing pricing and valuations. “The
limited cap rate data available
remains all over the board and is,
therefore, not particularly useful
in determining private-market
hotel values,” Arabia contends.
“Price-per-key is down some
35 percent to 45 percent from
the peak in mid-2007, yet even
the price-per-key data are called
into question, given the rela-
tively small sample size of the
most recent transactions.”
Given the deeply depressed
cash flow levels for hotel assets,
it’s almost impossible to look
to NAV or EBITA multiples to
Average Dividend Yield
2006
Lodging/Resort REITs 4. 36
Equity REITs 3. 69
10 Year Treasury Note 4. 79
Source: FTSE NAREIT U.S. Real Estate Index
2007
6. 54
4.91
4. 63
2008
10. 72
7. 56
3. 67
2009
0.23
3. 73
3. 27
determine value, leaving only the
replacement cost method, Salin-sky notes. In many cases, hotels
today are trading at $200,000
per key, when it would easily cost
$300,000 to build a new hotel.
Beyond concerns about valuations, many REITs have not
made any acquisitions because
they’re waiting for distressed
properties. “There’s this anticipation that there will be a lot of
distressed hotel assets available,”
Katz says. “Many lodging REITs
went out and raised money solely
to take advantage of distressed
opportunities, but it looks like it
will be a while before those opportunities will emerge.”
Distressed, but Not
Desperate
Without question, many hotel
properties have become distressed. As of early February
2010, $22.9 billion worth of hotel
properties were classified as distressed, according to Real Capital
Analytics’ Troubled Assets Radar.
“Simply put, billions of dol-
lars of hotels bought in recent
years will be unable to meet
debt service in 2010, or they will
face mortgage maturities in the
next two years that cannot be
refinanced without a sizable eq-
uity infusion,” Arabia says. “To
some, this downturn is eagerly
anticipated to result in the buy-
ing opportunity of a lifetime.”
Although some lenders have
taken properties back, as in the
case of Sunstone Hotel Inves-
tors Inc. (NYSE: SHO) hand-
ing over 11 hotels to its lender,
Mass Mutual Insurance, most
hotel lenders and CMBS special
servicers have tried to avoid
foreclosure and receivership by
granting cash-strapped owners
a little breathing room. Arabia
notes that this was clearly the
case in the lender’s decision to
grant a favorable loan modifica-
tion on Strategic Hotels &
Resorts Inc.’s (NYSE: BEE)
InterContinental Prague.
Jennifer Duell is a regular contributor to REIT.
