Investment

Fundamentals near 2007 peak levels

16 Mar, 2012 By: Andrew Sheivachman

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After a year of turmoil in the global financial markets, one hotel industry veteran sees smoother sailing ahead for hotel owners. The Plasencia Group released its annual Lodging Investment Roadmap, which finds a hotel market primed to enter a fresh up cycle, despite a lack of easy construction financing available.

“We believe that the lodging sector as a whole will be back up to 2007 peak levels this year,“ said Lou Plasencia, chairman and CEO of The Plasencia Group. “Many markets are already hitting those levels and that’s very much the case in the Sun Belt states. Bottom line profitability is actually very strong as a result of people operating properties in a much more lean fashion during the recession and those practices are still in place.”

His forecast calls for minimal development outside of the most primary U.S. markets, while 21 weaker markets will see their profitability stabilize in 2012. “Other than in New York or Las Vegas, we don’t see any major increases in full-service supply in any major market,” said Plasencia. “That is primarily due to a lack of construction debt. There is very little financing available for construction financing. The other variable is that people are saying, ‘why should I spend two or three years getting permits, ramping up and then stabilizing’ when I can buy an existing hotel in a distressed situation and be cash flowing fairly quickly.”

Expect private equity groups and joint ventures to propel the bulk of acquisitions in 2012. According to the report, about $21.7 billion on 232 hotel CMBS loans will come due this year and require refinancing. This could mean historic levels of hotel foreclosures. “Smart equity in full-service is going after existing product by recapitalizing existing hotels,” said Plasencia. “Very little new construction is going on except high net-worth individual money. We may see private-public ventures going up, but I don’t see any new supply increases of any significance.”

Opportunistic buyers will have the opportunity to acquire debt on hotels below replacement cost. “It’s the forced owners that will be selling, lenders that had no desire to be real estate owners that must by charter move properties off their books after three years without an extension,” said Plasencia. “A lot of lenders were waiting to sell until opportunity funds improved and now there’s a clear sign that numbers are improving. Lenders want to be selling into an up market.”

Topic : Valuations, Development
External Source : Hotel Management