NEW YORK—Panelists at the recent RealShare Hotels conference in New York touched on the retreat of real-estate investment trust stocks and uneasiness in the capital markets.
REIT retreat
In a panel called “Do REITs Rule the World?” panelists acknowledged that after brisk business earlier this year, transactions have slowed or stopped and investment opportunities in the hotel landscape.
Jeff Dauray, VP of acquisition for RLJ Lodging Trust, said, “REITs were on a record pace in the first half of the year. Now with equity prices where they are, I don’t believe the majority of REITs will be buyers unless there is a correction in prices. Right now, there is a disconnect between the price expectations of buyers and REITs.
“REITs are taking a breather,” Dauray added. “They are pulling back. When REITs look at their cost of capital, they are looking at buying back stock rather than acquiring assets.”
HIBArticles Ad Will Appear Here
Too much money was put into REITs, said Jack vanHartesvelt, managing director of A&M Capital Real Estate. “Now with their share prices so much lower than at the start of the year, their next step might be fighting for credibility if not survival. In many respects, they overpaid for assets because they were under pressure to perform.”
However, Dauray asserted that REITs are not out of business. “There are REITs that will get deals done by leveraging their traditional strengths, but it will be a more challenging environment,” he said.
And Michael Medzigian, managing partner with Watermark Capital Partners, said his company “very much likes” this market.
“There will be huge debt coming due in the next couple of years and that has to be resolved,” he said. “With new construction not on the horizon, we see a potentially good time for those with capital. We are looking ahead seven or eight years, and are not just worried about next year.”
“We like debt if we can find it,” vanHartesvelt added. “We’re looking for deals with a certain yield—debt with fee simple interest. Or situations where we can do a value added—like a renovation or change of flag.”
Bill Weber, managing director for Cantor Fitzgerald, speaking on a panel on capital markets, said during the past three months the tremendous volatility in the capital markets has had the most dramatic impact on spreads.
Opportunities to invest
While much of the financing focus is on coastal, urban markets, panelists saw other opportunities. “As long as an asset has cash flow and flies one of the top four of five flags, a deal can work,” said Peter Berk, president of PMZ Hotel Finance Group. “For instance, we just did a deal in Hattiesburg, Mississippi.”
David Soares, CEO of Lexden Capital, said he does much of his business under the federal Small Business Administration 504 loan program, which was designed for smaller markets. “We are happy to go to markets not considered by others,” he said.
New building will be sketchy, Berk said. The key is to keep it simple. “In smaller markets, with the right brand, it can work. It’s always a great position to have the newest and nicest brand hotel,” he said.
Panelists were wary of investing in independent hotels. “You have to be comfortable with it,” said Jon Benowitz, managing director of RockBridge Capital. “I have done independents but won’t do it in a market that is saturated. There has to be really good reason to think it will perform.”