Clear, more focused bidding to distinguish 2014

The 139-room Holiday Inn Express in York, Pa.

The 139-room Holiday Inn Express in York, Pa., was sold by MBA Hotel Brokers in 2013.

The 139-room Holiday Inn Express in York, Pa., was sold by MBA Hotel Brokers in 2013.

 

Virtual Event

HOTEL OPTIMIZATION PART 2 | SEPTEMBER 10 & 24, 2020

Survival in these times is highly dependent on a hotel's ability to quickly adapt and pivot their business to meet the current needs of travelers and the surrounding community. Join us for Optimization Part 2 – a FREE virtual event – as we bring together top players in the industry to discuss alternative uses when occupancy is down, ways to boost F&B revenue, how to help your staff adjust to new challenges and more, in a series of panels focused on how you can regain profitability during this crisis.


Kevin Mallory, senior managing director and Americas practice leader, CBRE Hotels
Recent projects:

* Gran Porto Real Resort and Spa, Playa Del Carmen, Mexico 
* Hilton Garden Inn, Rancho Mirage, Calif.
* Hilton Garden Inn Luton, Bedford, United Kingdom

HM: Identify the most important trend that influenced hotel transactions in 2013?
KM: The 2013 hotel transaction market was driven by continued strong performance in underlying fundamentals combined with increased liquidity in the capital markets. All types of equity participants were active, including real estate investment trusts, owner operators, pension, institutional and foreign. Debt capital is similarly active with participation from banks, CMBS originators, insurance companies and alternative lenders, such as funds and debt REITs.

HM: What trends do you think will affect hotel transactions in 2014?
KM: There will continue to be low cost of capital, an increase in foreign interest, increasing development activity, demand growth in excess of supply growth and a slowing rate of growth in fundamentals, despite continued improvement.

HM: What are your industry forecasts overall for 2014? And will they be better than 2013?
KM: Single asset transaction activity will approach $30 billion.

HM: How has the transactions environment changed the most since the last cycle’s peak?
KM: Buyers are showing more discipline to their strategy. Fewer yet more focused bidders are focusing on any given offering—and there has been a doubling of activity derived from foreign investors.

HM: How would you describe the transactions climate in 2013?
KM: The transactions climate in 2013 produced a robust market.

The hotel transactions market in 2014 is expected to be characterized by the low cost of capital.

The hotel transactions market in 2014 is expected to be characterized by the low cost of capital.

 

Charlie Fritsch, president, MBA Hotel Brokers
Recent projects:

* Holiday Inn Express, York, Pa.

HM: Identify the most important trend that influenced hotel transactions in 2013?
CF: Lenders and a reconstituted lender field of capital providers for hotels are coming forward with more commercial mortgage-backed security. The Small Business Administration is also a big player in any transaction up to even $15 million, and there are more credit unions offering commercial loans for hotels. After 2008, credit unions came out strong, as they hadn’t dabbled in derivatives. Lenders are detailed in making sure every bit of documentation is done perfectly. There are also fewer distressed transactions taking place.

HM: What trends will affect hotel transactions in 2014?
CF: There will be even fewer distressed transactions. The number of hotels still in distress or working through the processes will continue to be dealt. More quality asset transactions will replace them, as investors begin looking for strong brands.

HM: What are your industry forecasts overall for 2014?
CF: Transaction volume will remain up, assuming nothing unexpected happens in the larger economic environment. There is an expected increase of 25 to 33 percent in volume.

HM: How has the transactions environment changed the most since the last cycle’s peak?
CF: Even before the crash in 2008, business had begun to slow in the summer before reaching a low level. With the memory of that in mind, lenders are more cautious. There are fewer buyers and a little more particular in what they are looking for. The environment is more challenging, with lenders requiring a deeper level of underwriting.

HM: How would you describe the transactions climate in 2013?
CF: Right brands in the right markets will be doing very well, but without either of those hotels will continue to struggle. In 2013 there was a movement in transactions toward higher quality brands and larger markets, with two-thirds of 2013 sales taking place in the eastern third of the U.S.

This year’s transaction market was as active as it has ever been, with everyone from real estate investment trusts, owner operators and even small-town credit unions snapping up properties. Throughout 2013 there was a movement toward buying and reflagging properties, particularly in major markets, with a heavy emphasis on the eastern U.S. Deals for distressed properties were still common, but are expected to slow somewhat moving further into 2014, replaced by a higher number of quality asset transactions. While the number of buyers has shrunk, transaction volume is up, meaning more focus and tenacity will be present in the bidding process. Foreign interest in U.S. hotels is also estimated to rise this year.

Trends
* Higher transaction volume than 2013.
* Fewer sales of distressed properties.
* Fewer, more focused bidders vying for offerings.
* More participation from banks, even small credit unions.

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