Money Confab Notes High Capital Costs

LOS ANGELES— The largest crowd in the 11-year history of the annual Meet The Money hotel finance and investment conference found out first-hand what the “good news/bad news” scenario is all about in terms of securing capital for most any lodging/hospitality-oriented purpose. In short, the overall lesson learned from the day-long confab mounted by Jeffer Mangels Butler & Marmaro LLP confirmed that financing— via the debt route, in particular— is definitely available in today’s capital markets, for a price. Session after session reinforced the message that there is money available to be borrowed for almost any hotel transaction, though today’s lodging-sector borrowers should understand that— as markets and underwriting standards tighten— they can expect to pay a premium for the privilege of securing acquisition, renovation and, to a lesser degree, construction funding. A majority of the direct lenders— as well as conduits and other facilitators— on hand at the Omni – Los Angeles noted that the bottom line is the hotel business is still widely viewed as a high-risk investment; an arena all-too-vulnerable to an array of assorted market and economic vagaries. Accordingly, today’s hotel-capitalization/hotel-financing undertaking now requires considerable mezzanine participation and other “enhancements and incentives,” in addition to the standard debt and equity arrangements. On a more positive note, however, most speakers/panelists at the annual investment conclave expressed optimism that the lodging industry is well-positioned to safely ride out the current national economic slowdown, and that the industry’s fortunes— and lenders’ appreciation— will take a turn for the better as shortly as perhaps a year from now. • Another axiom to emerge from the conference was that “relationship lending” will become stronger than ever as virtually all sources of capital take whatever steps necessary to reduce their perceived level of risk in today’s hotel deals. Thus, it was contended that syndication has become virtually par for the course as few, if any, institutions seem willing to carry more than $30 million on any single transaction. Setting the tone right from the opening bell was Suzanne Mellen of HVS International, who reiterated some of the grimmer statistics underscoring what many in the overflow audience already suspected. This included her organization’s observation that: • Major hotel sales are off the pace so far this year. • Average purchase prices have dropped in those sales that have been transacted. • In the year’s top sales, fully 50% of those deals have come in at less than $300,000 per room. The morning’s initial panel presentation brought together Canyon Capital Realty Advisors’ Jonathan Roth, Holliday Fenoglio’s Scott McMullin, Greenwich Capital’s Gary Swon, Simon & Sons’ Philip Fitzgerald, GMAC’s Jerry Earnest and Tarsadia Hotels’ Gregory Casserly. One major theme of this session, asserted by Earnest, was that those looking to develop properties in attractive, high-barrier locations would do well to link up with a top hotel operator, particularly one willing to join the developer in making a substantial commitment to the project via equity or credit-enhancement. Following this presentation, Atlas Hospitality Group’s Alan Reay took the stand to point out that not every market is equally “golden” throughout the Golden State. As he contended, there can be a world of difference between property performance as well as transactional activity between Northern California and Southern California locations. Other panels addressed such topics and concerns as: what premium hotel lenders are looking for and what their appetites are likely to be; a discussion of Joint Ventures and Special Alignment; an explanation of Debt & Equity for Mortals; a hands-on exercise in Thinking Outside the Box; an in-depth foray— led by HOTEL JOURNAL® Publisher Stacy Silver— into what the big banks are thinking and doing; and a primer on “Enh