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2010 Hotel Supply Shaped by Current Debt/Equity Trends

Tight debt and equity for hotel development will be a net positive for the industry's fundamentals two years from now, say experts.

By Erika Morphy | Updated on April 06, 2008

Kimpton Group Holding LLC, the parent company of locally based Kimpton Hotels & Restaurants, just closed its latest fund with $246 million of equity commitments — 50% more than it attracted three years ago for its previous fund. Levered by 70%, the fund should be able to acquire $800 million worth of hotels in the next three years. Called Kimpton Hospitality Partners II LP, the fund — like its predecessors — was formed to acquire, develop and redevelop boutique/lifestyle hotel properties and convert non-hotel buildings into boutique/lifestyle properties in major US cities and resort areas.

Mike Depatie, president and CEO of Kimpton Hotels & Restaurants, tells GlobeSt.com he doesn’t anticipate having a problem with a 70% LTV. Still, though, he is quick to acknowledge that, generally speaking, debt for hotels is much harder to come by these days. “The amount of leverage [lenders are willing to accept] is much less than it was even six months ago. Now, deals look a lot more like they did in 2003 and 2004.” What’s more, he adds, spreads are wider and terms more difficult. More lenders are requiring recourse, for instance, and fewer finance providers are lining up to bid for projects. It is a much more difficult debt environment, Depatie concludes.

The same story is playing out across just about every real estate asset class. The debt and equity squeeze for hotel development and acquisition, though, could continue to affect the shape of the industry’s supply pipeline long after these current credit market woes pass.

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