Hotel & Motel Management - May 5, 2008 - (Page 14)

14 On Finance IN THE details Capital not available Mezzanine loans return Seek the right partner Look beyond pricing H&MM May 5, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Old friend helps with ﬁnancing in slow market W By James Merkel H&MM Columnist ith no economic turnaround on the immediate horizon and the fallout of the credit market still playing out, dealmakers in the lodging industry are having to adjust. The commercial mortgage backed securities market growth drove down the cost of capital and drove the velocity of the lodging upturn we experienced in 2005 and 2006, but as the CMBS market has crashed, we are left with a bit of a hangover. The CMBS market is closed. Other providers have circled the wagons, lowering loanto-value ratios and putting a serious crimp in the access to capital. Mezz to the rescue Given the uncertainty and illi- quidity in the marketplace, those looking for ﬁnancing are reaching out to an old friend for a lift. Speciﬁcally, investors are turning to mezzanine debt to help weather this economic downturn—much like they did post9/11. Before the credit crash, mezzanine ﬁnancing had fallen out of favor because investors could ﬁll the capital gap with readily available, cheap ﬁrstmortgage debt that stretched underwriting standards and loanto-value ratios. Now, however, it’s no longer about cost of capital. It’s about liquidity and ﬁlling the gaps in the capital structure to get the deal done. One example of how important mezzanine debt might be to the industry over the next few years is Ashford Hospitality Trust’s recently announced joint venture with Prudential Real Estate Investors. The joint venture will attempt to reposition Ashford from its role as a realestate investment trust to that of a primary mezzanine capital provider. Clearly, the company sees a need in the industry that must be ﬁlled. With other avenues closed to them, investors will rely on alternative methods to fund deals until the market rebounds. They will include banks, life insurance and capital companies, as well as mezzanine debt providers. Looking long term Rebounds take time, as the market works off the excesses of the prior cycle. As such, it might be two to three years before the markets get back on ﬁrm footing. Until that happens, hotel deals won’t be for the faint of heart. But for those serious about being a long-term player in the industry, choosing an established ﬁnancial partner who can navigate the mineﬁelds of the current capital landscape is essential. Those who look solely at cost of capital are shortsighted. There always will be providers trying to buy market share, and you’ll ﬁnd most don’t have staying power. Faced with today’s economic uncertainty, investors need partners who are committed to the hospitality industry and know what it takes to get a deal done. For long-term success, consider the all-in cost and choose a capital provider who understands it’s not pricing that creates value but liquidity and execution. hmm@questex.com James T. Merkel is managing director of Columbus-based RockBridge Capital LLC. He can be reached at (614) 246-2505. CIRCLE NO. 111 “If anybody can tell you how to control energy bills, it’s me.” “My guests are always opening the windows to look at the ocean, so I need to do everything I can to keep my energy bills low,” says Marcus Lewis, Vice President of Development, Tidewater Hotels & Resorts. “That’s one reason I use only GE Zoneline® units in all nine of our oceanfront properties. They help keep rooms comfortable, are very quiet and help me control energy costs…even if I can’t control my guests’ behavior.” GE Zoneline®, the most efﬁcient line of package terminal air conditioners and heat pumps in the industry http://HotelMotel.com http://www.HotelMotel.com/digital_edition

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Hotel & Motel Management - May 5, 2008 Contents Pipeline Favors Established Companies 3 Palms Debuts in Upscale Tier Guests Want Reward Options Perspective Legally Speaking Marketing Matters Consultant’s Corner On Finance What Women Want Maintenance Doctor Trends & Stats Special Report: Top Hotel Brokers Design: Tune Into Music Programs Hot Products: PTACs On the Block: Silver Lining in Bleak Hotel Sales Market Events Transactions Supplier News Consumer Insight: The Importance of Creature Comforts When Traveling Ad/Editorial Index Marketplace Classifieds Checking Out

Hotel & Motel Management - May 5, 2008

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