Abundant Money Chasing Few Opportunities

LOS ANGELES— The 12th annual edition of the Jeffer Mangels Butler & Marmaro-hosted Meet The Money conference played its usual one-day program to a noticeably larger turnout this year, in its wake leaving attendees with a predominantly positive 10-word assessment of the current financial marketplace: “There’s money out there…but few deals to be done.” As speaker after speaker seemed to indicate, there is still a real wariness about the current— and future— state of the hotel marketplace among buyers, sellers and financiers alike, despite the recent advent of generally encouraging numbers. In essence, the primary hang-up appears to be one of asset valuation, with buyers ostensibly pegging it too low, sellers holding it too high, and senior lenders as well as other capital sources not really sure of what the market is demonstrating. In the course of the conclave’s opening panel presentation, Sonnenblick-Eichner’s Elliot Eichner maintained “the past 30 – 45 days saw the debt-market view of hotels take a decidedly positive turn.” Accordingly, his notion is: “This feels like a good time to finance hotel deals.” In terms of what money might be available for what purpose, Eichner allowed construction financing still rests on the bottom half of lenders’ wish lists, while funding for refinance and acquisition makes it into the more-favored end of the capital-infusion spectrum…but just barely. That said, Mark Lanspa of GE Capital Real Estate said part of this seeming lender reticence may stem from the fact “trailing 12” is still very much the measuring stick for loan decision-making…and the past year has certainly not been kind to the hotel sector. Following up on Lanspa’s observation, GMAC Commercial Mortgage’s Jerry Earnest contended— despite the cautious and conservative mindset guiding the hands of lenders— the times today are really not so difficult for capital sources…particularly those involved in the mezzanine end of the business. On that note, Abid Gilani of The Bank of Nova Scotia ended by raising the hopes of those (potential) borrowers in the audience when he asserted the inordinately high rates attached to mezzanine loans are bound to come down in the very near future, if for no other reason than there are now a glut of such lenders out there and the principles of competition will doubtlessly come into play. To a great extent, much of this perspective was summed up later in the program when the findings and conclusions of an inaugural JMBM market survey contended: -Borrowers are challenged; -Lenders are choosy; -Creative funding is the order of the day; and -Because the industry has obviously “weathered the storm,” some 85% of lenders polled reveal they expect to see more hotel loans underwritten going forward.