New Era Of Deal-Making Dawns

NATIONAL REPORT— While laying low to weather the stormy industry financial climate may be instinctive for some, other industry players are boldly sticking their heads out to survey what damage there might be, and to look for real estate acquisition or sale opportunities. Despite one of the worst periods in recent history for lending conditions, hotel transactions— big and small— are getting done. The proof is in the number and type of deals the industry has seen inked as of late, such as the sale of the Hotel Delmonico in New York City to Donald Trump and the acquisition of the Homestead Village chain of 111 hotels by Blackstone Group from Chicago-based Security Capital. But that does not mean transactions in the current industry environment are easy to accomplish. In fact, most experts agreed that only those able (financially), and willing (to work hard to get what they want), would indeed complete any type of deal. And it seems as if, based on the cross-section of sale agreements inked and on the table, “vulture funds” aren’t the only ones picking through obtainable assets. Who is out there looking to buy? According to experts, potential buyers include a sampling of all sorts of industry players, including opportunity or “vulture” funds looking for bargains, private equity funds, owner/operators, independent and branded management companies and a select few well-capitalized public hotel chains. To point out a few by name, Omni Hotels, Kimpton Hotel Group, Six Continents Hotels and Starwood on behalf of W (see Hotel Business®, Dec. 21, 2001) have all been said to be looking to buy recently. In fact, while conducting a recent interview with HOTEL BUSINESS®, Tom LaTour, president, Kimpton, said he was preparing to attend meetings with “potential opportunities.” Meanwhile, Omni expanded its development team specifically for the purpose of growing its portfolio— including a position that analyzes potential acquisitions. “The best opportunities are achieved in times of uncertainty,” said Mark Gordon, managing director, Sonnenblick-Goldman, alluding to the potential for deal-making. Gordon said he believes many of the players currently looking to buy have a new focus— investing in those asset classes over-penalized by the slowing economy and events of Sept. 11 which promise to rebound and generate strong returns on investment. “Many investors are realizing the hotel industry has been penalized, and there is significant upside potential,” he added. That could be why we have seen the likes of Donald Trump snapping up the Hotel Delmonico, which had been on the market for some time. The deal, according to Sonnenblick-Goldman, attracted 12 proposals “from highly qualified buyers.” Trump, who was said to have spent several months studying the hotel, ultimately submitted the most attractive proposal encompassing price, terms and conditions, said the brokerage firm. He is currently considering various alternative uses for the property, and will take ownership of the hotel in early 2002. According to Joe Kaminski, GM at the 31-story, all-suite hotel, Trump will invest additional capital to improve the property. He said the executive staff at the Hotel Delmonico is currently analyzing the property’s systems to quantify the amount of work that could potentially be needed. “The fact that we were able to secure a dozen proposals in the current economic environment is reflective of the international community’s belief that New York is and will remain the financial and leisure capital of the world,” said Joseph Williams, managing director, Sonnenblick-Goldman. Gordon said the deal also demonstrates the opportunistic nature of potential buyers and the emphasis on key markets, regardless of the events of Sept. 11. Similarly, Blackstone Group, which has been called a “bargain hunter,” picked up the 111-property Homestead Village portfolio from Security Capital Group, after the assets had been on the block for awhile. According to ind