NEW YORK— Two panels of lodging analysts at the NYU Hospitality Industry Investment Conference here agreed today that future industry consolidation was a foregone conclusion, but that the shape of any likely mergers and acquisitions would be different from the deals that occurred in the 1990s. Consolidation is not as simple as it was 10 years ago when branded hotel companies were both owners and managers, according to W. Edward Walter, executive vp and CFO of Host Marriott, who spoke on the “Relationship Management” panel. “Today, acquisitions are more likely to represent a partnership of a hotel company that manages properties and a financing source that provides the equity,” he said. With hotel companies today more likely to be managers than owners, they need to partner with outside sources of funding, confirmed Donald Kinsey, managing director of Credit Suisse First Boston. The proposed acquisition of Le Meridien Hotels & Resorts by Starwood Hotels & Resorts Worldwide is a case in point, according to David Anders, first vp at Merrill Lynch, who spoke on a follow-up panel entitled “Timing Value: Analysis or Speculation?” “The Le Meridien deal is likely to be thought of as a watershed in this regard,” Anders said. With Lehman Brothers providing the majority of the capital, Starwood would manage the Le Meridien portfolio as a brand distinct from its existing upper upscale brands, Westin and W. Propelling the latest wave of consolidation are a perfect storm of four factors: continuing strong demand, the easy availability of capital, high barriers to entry for new properties in the key gateway cities, and the increasingly high cost of construction. The high barriers to entry and high construction costs have also contributed to the current low level of the pipeline. “Supply inevitably will begin to rise as the cycle moves forward,” said Arne Sorenson, Marriot International executive vp and CFO. Many key markets presently are experiencing a wave of residential condominium development, but as that demand reaches saturation Sorenson said he expects developers to start to turn their attention to lodging. Consequently, he said urban development is likely to lag resort development. In terms of timing for the coming consolidation, Marc Falcone, managing director of Deutsche Bank Securities, told the audience to expect a few deals by year-end. While future consolidations are inevitable, Harry Curtis, managing director of J.P. Morgan Chase, isnt sure that its mega-deals that are in the offering. “Given the complexity of such deals, theres a strong likelihood that what we might see in the short-term is a series of one-offs,” he said. Considering its history with Marriott International, Host Marriotts portfolio currently is made up mostly of Marriott-branded hotels. “This is likely to change going forward as we actively seek to diversify, ” Walter said. But for its part Marriott expects to continue to broaden the number of owner entities it works with. “Big companies will have many real estate partners,” Sorenson said.
