Whether you’re looking to buy or sell, now is the time to dive into the transactions market.
HOUSTON—Two years ago, Hank Wolpert’s analysis of the hotel transactions environment might have lasted five minutes. But today, as it turns out, he has a lot to talk about.
“Up until the last couple quarters, a broker was defined as someone who went home and told their wife not to quit their day job,” Wolpert, managing director of Colliers International Hotels, said Wednesday during a hospitality real-estate transactions workshop at the 2011 Hospitality Law Conference presented by HospitalityLawyer.com.
Overall, transaction velocity is 2.5 times what it was in 2008-2009, Wolpert said. The biggest transactions are being led by real estate investment trusts.
“REITs have absolutely gone nuts the last two years,” he said. “They are paying high prices.” Private-equity funds also are jumping into the game, he added, and they are seeking full-service urban and suburban hotels.
Bidders are aggressively going after properties, Wolpert said. “It’s amazing how fast the letters of intent come in on top properties.”
He is often asked whether it is a better time to buy or sell. The answer? Yes.
“For sellers, this is a good time to sell before the distressed assets come on the market,” he said during the session at the Omni Houston. “And for buyers, it’s a good time to buy before prices get bid back up.”
For now, a fire sale of hotel properties doesn’t appear likely. “A lot of the lenders are saying, ‘We can hold the line. We can sell the note, but we’ll sell at close to par,’” he said.
The financing environment
For those deals that require leverage, financing terms are tougher, he said.
“We’re getting back to doing real honest-to-goodness underwriting,” Wolpert said.
Loan-to-value ratios have shrunk to the 50% to 70% range, and lenders are asking borrowers to have enough cash to cover 130% to 150% of the debt, up from less than 100%. Interest rates, though, are as low as 4.5% to 5%, he added.
For those loans that require a workout, cooperation is key, said Brent Cohen, a partner at Jones Day, later during the workshop. “It can get really acrimonious,” Cohen said of negotiations between borrower and lender. “Any foul up (in communication) can result in a huge mistrust.”
Relating the borrower’s perspective, Timi Anyon Hallem said the sides need to be willing to be creative and compromise during workout negotiations. After all, hang-ups are bound to occur.
She agreed a good relationship between the two sides is critical. “The client has to be good people,” said Hallem, a partner in the real estate and land use group and chairwoman of the hospitality group at Manatt, Phelps & Phillips. “If the lender thinks the borrower is not running the property well, the lender has zero incentive to do the deal.”