In a panel titled "Let's Get Creative: Different Deal Structures for Different Deals," and moderated by Kenneth Balin, managing director and principal at AMC Delancey Group Inc., Mark Mutkoski, principal of True North Management Group, a mezzanine lender, stated that spreads on small loans are almost as tight as on large loans, a sign, he suggested, that the sector is at the top end of the credit market. He also said that rating agencies are beginning to balk at some deals. "It's a great time to be a borrower, but it won't last," he said.
Andrew Benioff, managing partner at BlueStone Real Estate Capital, noted that underwriting is easier today due to more transparency within the real estate industry. However, he added that because of competition on both the debt and equity side, "people are stretching to put money on the street." Further, spreads on B pieces have "slimmed considerably," he said.
Both Mutkoski and Richard Mandel, founder and president of Ramsfield Hospitality Finance, said that loan-to-value ratios have risen in recent years. Both executives also expect that some deals made today will encounter difficulties in the future due to changing market conditions.
"The credit cycle will tighten up," Mutkoski said, "and more supply will come on line. After that, some deals that lenders saw as marginal will have problems."
Mandel said RevPAR growth during the first quarter in some markets has not been as high as anticipated. "[The markets] have hit a ceiling and [hotels] can't push rates" any higher, he said.
Also on the panel was Ethan Nessen, president and CEO of CRIC Capital, a single-tenant net-lease lender. He said his company focuses on limited-service hotels, which have exhibited stable revenue flows in the past several years. The flood of capital into the lodging sector is similar to what has happened in other service industries, such as restaurants, where owners have realized they could reap more value for their business and real estate holdings if the brick and mortar are sold separately from the operations rather than selling both together.
Yet in another panel, two participants said that now is a great time to refinance. They spoke during a session entitled "Buy, Sell, Refi, Hold: Landmines in Today's Acquisitions, Dispositions & Development Markets." The panel was moderated by Nelson Migdal, a shareholder with Greenberg & Traurig LLP.
Ellen Brown, director of development at Denihan Hospitality Group, an owner/operator of upscale hotels, said that her company is looking to refinance its hotels now. "Refinancing is a great way to harvest equity and still hold assets," she said.
Angelo Stambules, VP at Capmark Finance Inc., said that his preference is for acquisition deals, even with leverage up to 80%. But he added he could understand why an owner would choose to refinance now. "It's a great time to be a borrower," he admitted.Selling, too, is an attractive option, said John Hamilton, partner and chief investment officer at Pyramid Advisors. He said his firm is looking to sell properties this year from its first fund, hoping to catch the market before values drop. "The time to sell is when there is some juice left in the assets, and you leave something on the table for the buyer," Hamilton said.
Both Hamilton and Brown stated that when seeking acquisitions, they look for properties that need some work, either renovations or better management. However, both agreed that estimating how much those upgrades will cost is difficult in today's marketplace. "I see deals getting done without an understanding of renovation costs," Brown said.
Held at the Grand Hyatt New York, RealShare Hotel Investment & Finance Summit was attended by more than 300 industry movers and shakers. The RealShare conference series is produced by Real Estate Media, publisher of GlobeSt.com, GlobeSt.RETAIL, Real Estate Forum magazine, and other print and online publications devoted to commercial real estate.
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