some of these assets is at this point in time, partly because of
leverage issues. But if you buy into the idea that most of these
assets are upside down from an equity standpoint, how do you
pay anything to an equity holder when the properties, in many
instances, aren’t worth the debt?
I don’t know how anybody pulls the trigger in this market. We
have a fund that we’re sitting on and I’m sure we will be sitting on
it for the balance of ’09. But, what’s your exit strategy? In order to
get out of these deals at some point in time, you’ve got to find
replacement financing because everything that you’re looking at
today is fairly short term. Well, when it comes time for you to refinance, it will be at a time when several billion dollars worth of
CMBS financing is rolling through the pipeline in 2011 and 2012.
You have think really hard about where you’re going to get
replacement financing when your loan matures. It’s a very scary
proposition for a lot of folks.
DAVIS: In order for the transaction market to be efficient, there
needs to be debt in the market. Right now, there is not enough
debt. When debt capital does come back, it’s going to be largely
geared toward refinancing performing assets. We need the CMBS
market to generate about $100 billion a year in real estate debt for
the market to get efficient again. And then you won’t have a refinance problem.
WOOD: How would you value a property in today’s
DAVIS: Right now, it’s more art than science because all values are
based on a crystal ball going forward, and we’re all guessing
where RevPAR’s going to go this year, next year and thereafter. But
you could generalize that values are off 30% to 50% from the peak.
Obviously, you have to judge each case individually. We try to
help our clients understand whether there’s going to be any appreciation in the asset, or whether it makes sense to hire a skilled manager and do a hold-and-wait for a better day. Or whether they’re
better off just creating liquidity today and taking what they can.
BEDSOLE: Another issue with respect to value is that there are
not a lot of comp sales. HVS came out with a concept of market
value versus liquidation value. The market value meaning that you
have a willing seller with no pressure to sell and a one- to three-year time period. Liquidation value involves a seller that has to sell
or is going into foreclosure.
WARNICK: The triple whammy is you’ve got depressed EBIDTA,
radically escalated cap rates and no debt. So if you are a buyer
today, you’d probably need to be looking at an all-equity transaction. That has a tendency to drive values down. Somebody’s
going to have to take those hits in order to attract capital back into
HOLTHOUSER: I know lots of owners that are holding because
they don’t have to sell. But they plan to sell in the next one to three
years. I would imagine at some point there’s going to be an awful
lot of hotel assets on the market at one time.
DAVIS: At the end of this year, you’re going to see a lot of these
REOs and distressed assets make their way into the system. Then,
probably at the end of 2011 or 2012, everybody who weathered
the storm will try to move those assets as well. But that’ll only happen if we get some efficiency back into the debt market. ◆
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S E T
.C T OM October 22, 2009 Teaneck Marriott at Glenpointe, Teaneck, NJ
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RealShare NEW JERSEY will once again lead the conversation of
New Jersey real estate on October 22nd. Don’t just take our word
for it; take the word of those who attended last year’s event:
A “very professional” event with “an excellent, diverse audience base.”
—BONNI HELLER, Broker, Cushman & Wakefield of New Jersey, Inc.
“Great interaction” and “a reinforcement during these tough times.”
—STEPHEN TOMICKI, previously Business Development Manager, T&M Associates
“Overall, always a good conference to attend.”
—PAUL HOYLE, Director of Development, Ignarri-Lummis Architects LLP