The Hotel Times - September 2008 - (Page 20)

BROKERAGE OUTLOOK » BY LOU PLASENCIA Is it time to buy, sell or hold? Finding what strategy works for you I Lou Plasencia is the founder, chairman and CEO of The Plasencia Group, where he is responsible for the ﬁrm’s business development activities and for the oversight of the hotel and resort acquisitions, dispositions and consulting engagements handled by The Plasencia Group. n today’s uncertain times, your circumstances will dictate the answer to the question of “buy, sell or hold?” Ever since the debt markets tightened in August 2007, pricing has changed. Sellers’ expectations of relative high pricing lingered for a few months. Then, when industry fundamentals started slipping during 2008, sellers became more realistic relative to pricing expectations. Actually, one can argue that the pricing frenzy that took place from 2005 through the summer of 2007 was unrealistic. Now that the pendulum has swung the other way, we are back to a more normalized pricing period. Who are the sellers of the last six months? A portion of the sellers are those who need to sell for ﬁnancial or other reasons. If a loan is coming due and an owner believes he or she is not going to achieve the necessary proceeds to pay off the debt, then to market they must go in hopes the buyer has enough equity to pay the price and execute the transaction. If partnerships go bad or there is a need for cash to ﬁnish other projects, hotel assets will go on the market. Therefore, for buyers, today is a good time to buy hotels from “distressed sellers”—if they can ﬁnd them. Yet some sellers are not distressed; they are strategic. They are simply looking to exit hotel real estate, keep management and use the proceeds to grow their companies either through development or acquisition. They are seeking a fair price and a long-term real estate partner to accomplish their goals. In this case, the right “marriage” between buyer and seller needs to take place and a good ﬁt may be more important than achieving the absolute highest price. So for buyers, it’s a good time to create a long-term relationship. If sellers have assumable debt, this also is a good time to go to market. Since the debt markets tightened last year, debt is no longer a commodity. It actually can serve as a premium to price, especially if it carries the favorable rates that were locked in over the past few years. However, if an owner reﬁnanced over the past few years, pulled out a lot of their equity and has ﬂoating-rate debt, they may not be able to achieve enough sale proceeds to pay off a highly-leveraged amount of debt. With increasingly There are always buyers and sellers in each cycle of the market. Today the buyer universe is significantly smaller than 18 months ago, but they still are out there. negative operating fundamentals over the short term, they will have to hunker down and hope that there is enough cash ﬂow to service debt. So a “hold” is dictated. There are always buyers and sellers in each cycle of the market. Today, the buyer universe is signiﬁcantly smaller than 18 months ago, but they still are out there. Buyers are spending greater efforts in their underwriting. Properties with existing debt—associated with quality brands—are still sought after. Is the time right to go to market? Only the owner and the circumstances and goals of that owner will dictate the answer to the question. hmm@questex.com 20 The Hotel Times September 2008 www.TheHotelTimes.com http://www.TheHotelTimes.com

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The Hotel Times - September 2008 Business Outlook Editorial Outlook Contents In The News Transactional Facts Hurry Up and Wait Capital Outlook Development Outlook Brokerage Outlook International Litigation: Who gets sued? Insurance Outlook Economic Crisis: Stress or Opportunity for Franchisees? Franchise Outlook Ad/Edit Index In Closing

The Hotel Times - September 2008

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