Hotel & Motel Management - January 7, 2008 - (Page 40) 40 Special Report H&MM January 7, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition REAL-ESTATE DEVELOPMENT & INVESTMENT Lenders tighten, but loans still available By Tony Dela Cruz CONTRIBUTING EDITOR otel developers who saw the availability of capital suddenly diminish last summer will almost certainly be looking for a 2008 forecast at “Capital Markets—The Lenders’ Outlook,” a panel discussion at The Americas Lodging Investment Summit, taking place Jan. 28-30 in Los Angeles. By now it has been well documented how last year’s subprime lending crisis reversed what had been a favorable bond market for hotel loans in the first half of 2007, said Steven McKenzie, managing director of Eastdil Secured and moderator of the panel. “You can obviously characterize the first half and second half H of 2007 as being very different,” he said. “First, there were record levels of liquidity and generous lending terms, and then starting in July, what went on in the bond market made lenders a lot more cautious,” he said. “In 2008, this is expected to continue to be difficult for a while.” Historically, it looks like the constantly moving pendulum of hotel capital has once again swung from plentiful to scarce. Few, if any, nonrecourse loans will be written, and lenders will ask for more equity loaded into the front of a deal. There will not be many large loans approaching $200 million that will not require securitization. And as per conventional wis- dom, McKenzie said, capital providers will be more interested in underwriting deals where there are barriers to entry and inherent market strength, i.e., “major urban markets that are supply-constrained and with seven-day-aweek demand patterns.” Operator experience also will figure into the equation. “This is not a market where people are going to get their first hotel development loan,” he said. Similarly, lenders will be looking to mediate risk in other ways. “They will be reluctant to underwrite pioneering concepts, such as a new brand being launched without the backing of a major brand owner,” McKenzie said. But McKenzie said there re- Give guests a reason to fall into those fancy beds. mains a slight “never-say-never” optimism among lenders. Financing new construction is not out of the question, “it’s just not as easy to put together as it was.” But he explained that in a period of flux, there are no rules of thumb for what constitutes a credible newconstruction proposal. “It’s kind of like, you know it when you see it.” Well-sponsored, well-conceived new-construction hotels will get built, he said. One precise measurement that lenders will use to approve deals will be cash flow coverage ratio, or the amount by which a hotel’s financial obligations are exceeded by its earnings. This is the kind of scrutiny that was enforced less during a vigorous lending market. Along the same lines, a fairly common, popular transaction from early 2007, the thincoverage turnaround deal, will be very difficult to pull off, McKenzie said. hmm@questex.com Name of panel: “Capital Markets—The Lenders’ Outlook” Time of panel: 11:30 a.m.–12:45 p.m., Jan. 29 Moderator: Steven L. McKenzie, managing director, Eastdil Secured Panelists: Joseph Asciolla, managing director, Calyon; Wayne M. Brandt, managing director, RBS Greenwich Capital; Bruce F. Davidson, managing director, head of hospitality and leisure finance, WestLB AG; Warren de Haan, managing director, Countrywide Commercial Real Estate Finance; Bruce C. Lowrey, senior v.p., Capmark Finance Equity Continued from page 28 leverage they need for some of these transactions, so that is going to make a window of opportunity for some strategic buyers to get in the game.” Panelist John Bralower, president, Carlton Hospitality Group, said he plans to address outbound investments and inbound U.S. hotel investment opportunities during the panel discussion. “Hotels have always been a very solid asset class, and as other areas have slowed down and with the dollar being weak, the U.S. hotel market has been a very attractive place for overseas investors,” he said Hospitality is the one industry that truly is international and therefore easy for overseas investors to understand, according to Bralower. Specifically, foreign investors have been attracted to mainly five-star luxury properties, a trend he expects to continue through 2008, he said. One main point Bralower said he wants to drive home is that this You want to give your guests everything they need to feel at home. And there’s one thing that more and more of them refuse to go without – their workout. For over 25 years Cybex has developed fitness experiences for the hospitality industry that enhance guests’ brand loyalty. Our complete fitness solutions include everything from consulting to equipment layouts to management and staffing, all backed by an industry-leading warranty and unparalleled customer support. To learn how to increase brand loyalty amongst your guests, please visit us at www.cybexhospitality.com www.cybexintl.com or call 774-324-8000. Corporate Offices: Boston | New York | London | Dubai CIRCLE NO. 113 hotel investing-and-building cycle is much different than ones in the past. “There is nothing I really want to warn anyone against, but I do want to point out something good: What generally killed the hotel industry in the past cycles has been over-building,” he said. “But looking at the supply coming on line and looking at what is getting built, it is still relatively limited compared to what has happened historically.” “There are many areas in the U.S. like New York City where there is still so much demand outstripping availability that the supply coming in will not have a negative impact on the market,” Bralower said. Along those lines, Langford said he believes investments in U.S. hotel opportunities will be more along geographic lines than market segments. “My personal view is that the gateway cities present a very robust environment for investors,” he said. “I believe geography may be a bit more of a driver than asset classes.” hmm@questex.com http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.cybexhospitality.com http://www.cybexintl.com
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