How’s your balance sheet? At 24th Annual Hunter Hotel Investment Conference at the Marriott Marquis in Atlanta, Ga., many of the executives, financial professionals, and owners were asking that question when discussing the state of financing in the current market. While some lenders, such as GE Capital, Wells Fargo, and Fidelity, are jumping back into the hotel game, executives from the lenders talked extensively about a good balance sheet and sponsorship as “must haves” for funding.
However, one good note, and a change from last year’s conference, is that confidence levels among hoteliers have risen, and many expect transactions to start flowing in the near future. As conference co-chair Bob Hunter noted during the opening of the conference, it is no longer “cautious optimism” but simply “optimism.”
During the president’s panel on the second day of the conference, some of the panelists shared that opinion. Jim Abrahamson, president and CEO of the industry’s largest management company, said, “I think this will be a very transactional industry, but it won’t be until the second half of the year.”
Of course, the rebound always looks different for various sectors of the industry. Choice Hotels International CEO Steve Joyce, who admitted that last year he was a little more pessimistic in terms of the financing outlook than some of his peers and industry analysts, says that financing in the economy space hasn’t really materialized. “It looks like that is still the big question mark, whether or not we will get a functioning lending market back,” he said. “In our space, it really doesn’t look like this year. You’re seeing some movement, but it’s still really slow. Construction financing is really tough to come by. Banks are requiring significant levels of guarantee.”
“I’ve been at this 32 years and we’ve never seen more debt equity available in the U.S. real estate market,” said Edward Kobel, president and COO of DeBartolo Development in Tampa, Fla. “The issue is you have to have a great balance sheet. So the demands from the lenders are very high. That will soften up in two or three years.”
“There are the haves and have-nots in terms of lenders,” added Mitesh “Mit” Shah, CEO of Noble Investment Group. “The question is who’s lending and to whom. We’ve been very fortunate because of sponsorship adoption. It’s always been about sponsorship.”
“It’s not only about liquidity, but also about credit,” said Abrahamson.
For the most part, the top executives on hand for the panel reiterated the thoughts that the while the economy is still a concern, the rises in occupancy, rate, and RevPAR indicate that people will be traveling this year, even despite rising gas prices. Many of the attendees who spoke with Lodging indicated that they believed pent up demand for travel and vacations will offset the rise in gas prices this year.
“We are seeing good performance for existing hotels. Existing hotel ownership is going to have a pretty good run, because you’re not going to have any significant inventory added until 2014 or 2015,” Joyce said. “We are going to do well, or we are going to do really well depending upon how much help we get from the economy.”