Maybe, says Arthur de Haast, global CEO of JLL Hotels. "It's a very modest rise," he admits, "and we're not sure it's a strong trend yet. But it is an indication that the gap between buyers and sellers is perhaps just beginning to close now."
Yet when measured on a year-over-year basis, first-half transactions amounted to $3.7 billion worldwide, a 78% drop from the first six months of 2008. Dissecting deal volume by region, the EMEA zone—Europe, Middle East and Africa—saw the most activity, with a transaction tally of $1.9 billion in the first half. Nevertheless, that represents a decline of 76% when compared to the same period in '08. Next up is the Americas, which registered a precipitous drop in transactions, sinking 86% to $1 billion. Asia Pacific hotel trading activity showed a more moderate decline, comparatively, of 55%, to $900 million.
Across all regions, larger-scale deals are more difficult to consummate due to the inability of potential buyers to obtain debt. Globally, just 13 transactions priced above $100 million traded in the first half versus 34 during the same period last year."With the relatively low amount of leverage available at the moment—50% to 60%, especially on the bigger deals—a buyer must write a very big equity check," de Haast maintains. "There are not many investors who can do that, and even those that can are reluctant to put that all into one deal because they are very risk averse now. Everybody is tending to focus on smaller transactions rather than portfolios."
Some larger hotels did switch ownership in recent months. For instance, in a recent deal orchestrated by JLL Hotels, Starwood Hotels & Resorts Worldwide Inc. shed the 404-room W San Francisco for $90 million, or 220,000 a key. The buyer is Keck Seng Investments. Also in the first half of this year, Host Hotels & Resorts Inc. sold the 498-key Hyatt Regency Boston for $113 million.
According to Stephen R. Hennis, managing director of Hospitium, an Arvada, CO-based consulting firm that specializes in the upscale and luxury lodging sectors, those deals are more the exception than the rule in today's sluggish acquisition marketplace—at least for now, anyway. "It's probably going to be that way for at least the next six to 12 months," he says. "A lot of it is dependent on the credit markets coming back and people being able to put on debt on properties."
According to Hospitium statistics, $170 million worth of upscale and luxury hotels/resorts were sold in the US in Q2. By comparison, at the height of the market in the second quarter of 2007, deal volume in those sectors soared to $6.5 billion.
Yet both de Haast and Hennis predict more lodging asset sales in coming months as banks realize it is futile to hold onto non-performing hotel loans and owners come to terms with today's re-adjusted, less-inflated pricing structure and attempt to recoup as much equity as possible.
"It's not going to be a flood," de Haast observes, "but we are seeing a steady increase in the number of assets being brought to market, primarily by banks, and that is increasing the availability of product."
Likewise, some current owners have decided to sell for strategic reasons—or they have come to the realization that the market is not going to turn around in a rapid or dramatic fashion. Therefore, they "are willing to accept lower prices than they would have done 12 to 18 months ago," de Haast says.
Moreover, simply extending a loan is no longer a solution since there is no guarantee values will increase in two or three years time. "It's not fixing the problem, it's just postponing it," Hennis explains. "For the most part, lenders see it's better to get out now and use that cash for better investments, even if they take fairly large haircuts on what the initial investment was, whether it was debt or preferred equity."
Whether looking to acquire the debt on a property or the property itself, bargains hunters can expect to see some deeply slashed price tags. "There is going to be a lot of properties on the market at significant discounts to what they were a few years ago," Hennis predicts, "and people will start buying those, even without available debt."
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