Savvy Shopping Will Yield Capital

NEW YORK— Lodging industry professionals in the market for financing have been assured that there is considerable money available. However, the problem seems to be that lining up the required amount of capital now necessitates more shopping around. As a result, contrary to Fed-mandated interest-rate cuts, the cost of borrowing may actually be climbing for acquisition- and renovation-oriented hotel executives. This was the message delivered to some 1,600 money-minded attendees at NYU’s 23rd Annual Hospitality Industry Investment Conference recently held here. Whether the focus was on equity funds, hotel debt markets or the full gamut of hotel capital markets, the prevailing notion throughout much of the conference was that real-estate financing has become a considerably more fragmented undertaking. For starters, the overriding observation at this year’s industry conclave mirrored what many in the industry’s ranks already surmise: there looks to be less one-stop debt-financing available today, albeit that primary debt is carrying a lower interest rate. And for the record, it was widely noted that first-level financing of 70% to 75% has now dropped to somewhere in the 60% to 65% range. Accordingly, it was contended that this pullback has effectively spurred a re-emergence— if not re-energization— of mezzanine lending. • Specifically, a session dealing primarily with hotel debt markets and options— led by Jones Lang LaSalle Hotels’ Arthur Adler— indicated that while most financing alternatives are still in play, mezzanine lending has steadily been assuming a larger role as first-mortgage coverage levels drop. Conversely, the panel agreed that the one notable product largely missing from today’s lending picture looked to be straight, non-recourse construction loans. Other market aspects and options dealt with by DePfa Bank AG’s Henrik Bartl, Remington Hotel Corp.’s Monty Bennett, Joe Asciolla of Credit Lyonnaise, InterBank Capital Partners’ Robert Barron and Ali Elam of Lehman Brothers included: 1. The importance of 12-month trailing numbers to loan-making decisions. 2. The rising perception of risk, leading to shorter terms and wider syndication. 3. The increasing “pickiness” of lenders with regard to borrower, track record, past relationship, project, location and even brand-involvement. • On the other side of the capitalization equation, an earlier panel presentation led by Greenhill & Co.’s Peter Krause explored the intent and impact of equity funds in today’s marketplace. To this end, Owen Thomas, Morgan Stanley Dean Witter (MSDW), neatly summed up a widespread perception of such capital sources when he said his organization is indeed “opportunistic and situation-specific, particularly when it comes to mergers and acquisitions.” Offering up another perspective of the industry based on the current economic climate, Ralph Rosenberg, Goldman, Sachs, maintained that, “Cap rates haven’t adjusted to falling interest rates… yet! However, interesting opportunities nonetheless do exist, even in today’s softer market.” Notably, he stressed that— for his company— the development of new hotels would not be among those aforementioned “opportunities.” Along the same lines, Jonathan Gray, Blackstone Real Estate Advisors, was perhaps even more adamant, noting that when it comes to hotel development, his company “has never built [a hotel]…and probably never will!” • Conversely, it may be that mixed-use projects fall more in-line with equity fund definitions of “opportunity.” At least, such undertakings do admittedly fit that bill with Rick Koenigsberger, Apollo Real Estate Advisers, who reported that his firm is currently in the middle of such a development. Taking a softer stance on the subject of new-builds was Allen Greer of Westbrook Partners LLC. As he pointed out, his organization does not wholly dismiss new construction as an investment option, as evidenced by some work in this genre currently taking shape on the West