dollars on the
to invest in
MARK J. GORDON
C&W SONNENBLICK GOLDMAN
HAMILTON: In addition, there is the
uncertainty surrounding the variables
affecting the economy. New supply is tangible; you know when it’s going to be
delivered and how it’s going to affect your
operation and your market. It’s a little less
certain as to when the credit crunch will
be over, when lenders will start to loosen
up their criteria and when money will be
available. We really don’t know whether
gas prices will be $4 or $6 next year. We
have no control over those elements. A lot
of investors, including us, are uncertain
about the future. It’s hard to underwrite
against a model where there’s uncertainty.
DAVID LOEB: One of the biggest things
that’s changed in the past year is cap rates.
As a result, if you are an owner, your asset
is probably substantially less valuable than
a year ago because of changes in the capital markets. As financing costs have
widened and risk premiums have returned
to the market, they have taken their toll on
commercial real estate values. The offset is
that cash flows have still grown over the
WOOD: What types of companies
do investors want to put money
into? Operators? Pure owners? Or
GOLDMAN: If the interests are aligned,
the owner/operator model is the best.
HAMILTON: I agree. We have a small ownership stake in a lot of real estate, but to us,
it’s meaningful money. We feel the impact
of the good and the bad the same way our
investors do, and it sharpens our ability as
an owner to understand what the issues are.
Management companies that have ownership stakes are somewhere in between the
brand and the ownership models. It’s a
good balance. Interests are not always
aligned in a fee-based model.
LOEB: From the public company perspective, the model you just described, brand or
management with ownership, is getting the
worst multiples today, which is a little odd.