Real Estate Forum - July/August 2010

WILLIAMS: We’ve looked at a few debt acquisition deals, but we haven’t pulled the trigger on anything. But if we were going to do it, we’d look for a loan-to-own deal. It’s also a much better path to the asset than it was in the ’90s, when you’d end up in bankruptcy and it could be two or three years before you would possibly get to the asset itself.

SALUSTRI: What about opportunities
in distress? Has the great flood of
opportunities become a myth?
NG: Most people around this table would
agree that we haven’t seen the magnitude
of distress everyone anticipated. Lenders
are bending over backwards to make a
deal and possibly extend a maturity. Now
that they’re seeing the industry turning
the corner, there’s more reason to work
with borrowers. We will, however, come
across some situations where a lender has
taken back an asset and may be willing to
sell during the pending upturn. It may
now be time to move it off the books. But
you’re not going to get the steep discounts
that people were once anticipating.
WILLIAMS: It’s incredible how many
deals have gone into special servicing,
yet they’ve been worked out. But they
really couldn’t be worked out in many
cases without the help of the brand.
With the brands working in conjunction
with the lenders and the owners, they
can make sure the owners hang onto
these properties.

SALUSTRI: Let’s talk a little bit about terms. What can buyers and sellers expect from the capital markets today? FISHBIN: We’re starting to see the re-emer-gence of a lending market. We’re seeing it, not in hospitality per se yet, but in other commercial asset classes—65% leverage, with maybe one tranche of mezz. We’re also expecting in the second half to see some securitization, and that should be very helpful for the transaction environment in general. For hospitality, that’s a 2011 discussion. NG: We did a loan about six months ago, in a refi, and the best we could do was an offshore bank who lent at 50% LTV, with a 1: 4 coverage. That was the best we could do back then, but things are coming back today. I’ve heard that lenders want to go up to 65%.

SHANER: We’ve done a few refinancings lately, and there’s a very narrow range of lenders that are willing to step up with us—all banks we’ve been with for years. But they’ve stiffened the terms. They want a 55% or 60% leveraged loan; they want guarantees and lots of equity, which has never happened before. FIELDS: I think hospitality lending will be back once we see the first hotel securitization. But I couldn’t tell you when that would be.

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With so many players out there raising capital for distress, and the dearth of those opportunities, many funds have started to give money back to their investors or alter their strategies. But there are still ways to play in the sector—moving away from trophy assets to more repositioning/value add buys, for instance, or investing in debt.