Hotel & Motel Management - January 7, 2008 - (Page 24) 24 Special Report H&MM January 7, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition REAL-ESTATE DEVELOPMENT & INVESTMENT REIT acquisition pace will slow in 2008 goal: to maximize returns to their investors. rivate equity firms had “The two vehicles diverge siga strong interest in real- nificantly when it comes to acestate investment trust complishing this goal,” Cruse transactions during the first half said. “REITs generally have a lowof 2007, but don’t expect such a risk, long-term investment hohigh rate of activity in 2008, ex- rizon and are focused on creatperts said. ing value through improvements Jay H. Shah, c.e.o. of to operations and reposiHersha Hospitality Trust tioning strategies.” in Philadelphia, attributThe private equity ed activity in 2007 to atmodel works very well tractively priced acquisiduring periods when tions and large amounts debt is inexpensive. “Unof available debt. derwriting standards “In addition, the hoare lax and asset values tel sector continues to go are rapidly improving, through one of its stron- Shah which characterizes the gest performance cycles HERSHA HOSPITALITY environment we were in in a long time,” Shah from 2004 through midsaid. “You have the com2007,” Cruse said. bination of strong reveREIT executives who nue per available room sold their companies in growth combined with early 2007 were recepwell-priced and copious tive to being acquired. amounts of debt.” John Arabia, princiThe future of the hopal, Green Street Advitel REIT sector will be sors in Newport Beach, a topic of discussion at Cruse Calif., said these execuThe Americas Lodg- SUNSTONE HOTEL tives sold what has provINVESTORS ing Investment Summit en to be a market top scheduled for Jan. 28-30 at the when cap rates were at their lowHyatt Regency Century Plaza in est and property evaluations were Los Angeles. close to their highs. Ken Cruse, c.f.o. of Sunstone “More time is probably needHotel Investors in San Clemente, ed to really be a judge of that, Calif., said REITs and private eq- but from that standpoint, it was uity firms generally have the same a great execution to create shareBy Sharon Anne Waldrop CONTRIBUTING EDITOR P holder value,” he said. Hotel REITs will “In some cases, the continue to have access REITs that sold generatto a lot of equity because ed strong shareholder valit’s available, and a lot of ue by selling,” Shah said. this equity may partici“From a strategy standpate in the hotel sector. point, they were probaShah said the hotel bly at a point in their life sector provides for incycle where they felt that stitutional capital and a Arabia this was the best way to GREEN STREET great hedge against inmaximize value for their flation, and although inshareholders.” vestors won’t have high debt, they The decision to sell a hotel know REITs aren’t going to have company is a complex one that a to compete with private equity number of mature lodging REITs firms that were able to afford very have made in the past few years. high prices because of the debt “In its simplest terms, the deci- they were getting. sion to sell is based on the premi“REITs are publicly traded, um the acquirer is willing to pay so they provide investors with to the market price of the target great liquidity and transparencompany’s equity plus the pres- cy,” Cruse said. “Also, REITs are ent value of the target company’s required to focus on investing for value-creation strategy,” Cruse the long term, so their strategies said. are based on creating real value Arabia said some executives during all phases of the lodging sold their companies at capitaliza- and economic cycle and providtion rates that they probably nev- ing safe, stable dividends to their er thought they could obtain on investors.” some of their portfolios. It’s unlikely that the rate of The REIT structure still can REITs purchased by private equibe an advantage in the industry. ty firms in 2007 will be repeated However, the credit dislocation of in 2008. the last few months has made debt Arabia said it’s fairly safe to financing harder to come by. assume that the industry still “It’s going back to the position will feel the impacts of the credit where some of the better invest- crunch, which will result in a lowments in the hospitality sector are er transaction volume, at least in probably going to be made by the the first part of the year. public market,” Shah said. “Currently, we’re in a credit Name of panel: “The Equity Outlook—A Focus on REITs” Time of panel: 10:45 a.m. –noon, Jan. 30 Moderator: Robert Koger, president, Molinaro Koger Panelists: John V. Arabia, principal, Green Street Advisors; Ken E. Cruse, c.f.o., Sunstone Hotel Investors; James E. Mead, executive v.p. and c.f.o., Strategic Hotels & Resorts; Sri Sambamurthy, managing director, Starwood Capital Group; Jay Shah, c.e.o., Hersha Hospitality Trust crunch where the cost of capital is clearly higher and share prices have weakened,” he said. The industry will not see the fervent pace of private equity firm buyouts of hotel REITs. “I think that once the credit market settles down a little bit, which I anticipate will probably be in a couple more quarters, we should be in an environment where hotel pricing will be attractive and we’ll be able to make some opportunistic acquisitions going forward.” Shah said. hmm@questex.com Efficiency, identifying markets lead development talks By Emily Hanna ASSOCIATE EDITOR Name of panel: “The Development Track—How to Select the Site and Assess Project Feasibility” Time of panel: 4:45-6 p.m., Jan. 28 Leaders: Bruce Baltin, senior v.p., PKF Consulting; William F. Schulz, president, ima+design; Russ Urban, senior v.p., development, HEI Hotels & Resorts; Richard Van Duzer, partner, Farella Braun + Martel LLP ith construction costs skyrocketing during the past few years, the tasks of learning efficient development methods, finding the right markets and controlling spending loom over the heads of developers. Industry leaders intend to tackle this and other topics in the session, “The Development Track—How to Select the Site and Assess Project Feasibility” at The Americas Lodging Investment Summit, to be held Jan. 28-30, at the Hyatt Regency Century Plaza in Los Angeles. Bruce Baltin, senior v.p. at PKF Consulting, suggested adaptive reuse, alternating materials, finding incentives from W cities and public agencies and shortening the entitlement timeline to operate efficiently. To cut the timeline, Bill Schulz, president of ima+design, said owners and developers should invest in collaborative Baltin site planning to ensure PKF CONSULTING optimal building density and placement. It also is integral to identify the right market opportunities. To locate a market “on a global basis, you start looking at where’s the healthiest rate and occupancy growth, and then you figure out how to get into the markets and figure out what level of unsatisfied demand there is in the marketplace,” Baltin said. When looking for sites within a good market, Baltin said spots with good access, visibility, area amenities, views and location are vital. For Schulz Schulz, the factors IMA+DESIGN seem to be more ecoconscious: access to regional transportation, fresh water, energy capacity, a good breeze and sunlight in an environmentally healthy area. Conversely, some spots even within good markets are poor choices, such as those that are hard to find or hard to See Development talks | page 26 http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition
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