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Buy, Buy, Buy; Sell, Sell, Sell Hotel transactions are on the uptick and we can expect more properties to trade ownership in 2010. Monday, February 01, 2010 Glenn Haussman

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The good news is that hotel transactions should rebound in 2010. The bad news, there were virtually no transactions in 2009. Believe it or not just about $9 billion in hotels traded owners worldwide during 2009, according to Jones Lang LaSalle Hotels, a serious drop from the $24.8 billion worth sold in 2008.

By now, we all know the story: credit evaporated, valuations plummeted and many hoteliers focused on hanging on to their assets rather than sell a property worth half as much as just the year or so before. But like everything else in the hotel business, the transaction market is cyclical as well. And those sitting on the sidelines with pocketfuls of cash are in the enviable position of having the opportunity to scoop up assets in the coming year.

“Transaction volume [domestically] will triple from 2009,” predicted Mark W. Elliott, Senior Managing Director with Hodges Ward Elliott, who said transactions here last year were down an astounding 90 percent since 2007.

It makes sense though that people didn’t want to sell. But the waiting game is over for many who simply don’t have the cash flow to survive. Or foreclosed hotels will be sold off by banks trying to rid themselves of repossessed properties. Either way it’s going to be a good year for opportunistic buyers with cash laden pockets.

According to the DLA Piper 2010 Hospitality Outlook Survey, 76 percent of respondents think that current market conditions have created good buying opportunities for well-capitalized investors, up from 65 percent in 2009. The survey also reported 42 percent of respondents expect no significant change in hotel asset values, while 20 percent expect values to rise, a sharp contrast to 2009 when 86 percent expected values to decline.

“Cash is always king and if you have the cash or funding there are good opportunities,” said Sandra Kellman, Global Co-chair and Head of the Hospitality & Leisure Group at DLA Piper. “There is a lot of money out there… and the money is coming back into the market.

Already valuations are on the uptick said Elliott, noting prices have climbed between five to 10 percent since Thanksgiving.

“The velocity of transactions will heat up- just naturally given the sluggishness if market in 2009,” said Scott Berman, US Leader of PricewaterhouseCoopers Hospitality & Leisure Practice. Already there is a buzz there will not only be single asset transactions but a portfolio or two. The expectation is in the second half of 2010 and into 2011 we will see significantly more trades as buyers and sellers find agreement on value, which has been a real issue to this point.”

Mark Woodworth, President Hospitality Research said people are talking about the noticeable increase in deals that have occurred during the past six to eight weeks. “Hotel investors sitting on the sidelines will move onto the field this year. A lot of people are saying we have hit a point where we can start buying into the market, but there has to be more financing in the market,” said Woodworth.

Arthur da Haast, Global CEO, Jones Lang LaSalle Hotels said 2009 was the worst year in the last 10 for transactions. “We were in a tailspin in 2008 for transaction volumes but in 2009 we stabilized and each quarter slightly improved. We expect to see a 40 percent increase in transactions in 2010 to 13 billion,” said da Haast.

The most common deals we’ll see in the coming year, said these experts are deals that are heavy in cash. The salad days of cheap and plentiful credit are over so many deals will require as much as 55 percent equity to close. Also most likely to sell are those where the buyer sees intrinsic value in the assets and are being sold at a good discount to replacement cost.

“You sense momentum toward it [more transactions]. But we also know a lot of capital is chasing few deals. This year could be the greatest investment opportunity that may not appear,” said Mitesh Shah, Senior Managing Principal & CEO, Noble Investment Group.

Anthony Falor, COO Select Service Division, Hodges Ward Elliott said he believes transactions will climb steadily, especially the smaller deals. “I saw transaction volume picking up noticeably starting in May for properties with a $7 million value and under due to foreclosures of product in that range and financing becoming available through the anticipated raising of the SBA 7a loan program from $2 million to $5 million with a 90 percent federal guaranty.

“We will continue to see lower pricing as financial results and REVPAR continuing to drop as a result of demand loss and continued pressure on average daily rates. Barring a major economic or terrorist event there is light at the end of the tunnel and hopefully by October 2010, we will see some encouraging signs when it comes to occupancies and future group booking paces for 2011. We made it through 2009- knocked down but not out. We are a resilient industry and will come back strong and smarter,” said Falor.