5 February 2009
Hotel Lawyers at “The conference of doom and gloom”
The ALIS conference this year was as glum as I can recall. You would have to go back to 1991 and 1992 at the old UCLA and NYU conferences to find a similar mood. Compared to the record attendance of more than 3,200 at last year’s ALIS conference, the attendance of 1,700 was a good showing, but obviously reflected a lot of cutbacks.
Sound Bites from the hotel industry leaders
Five hospitality lawyers from our Global Hospitality Group attended the conference this year, and here are some soundbites that we gathered. We aren’t “verifying” any of these matters as fact, just passing on what you might’ve heard if you attended the conference:
- Debt financing is dead, at least for anything over $20 million. Smaller transactions are happening through local banks.</li?
- It looks like there is at least a 10% RevPAR decline coming in through the pipeline which is likely to depress NOI by 20 to 25%.
- A lot of money continues to sit on the sidelines. Sellers are waiting for things to get better, but they are not. Buyers don’t think the discounts are deep enough yet. “Everyone is afraid that today’s 10 cap is really an 8.”
- With the recession hitting Europe and currency exchange rates changing, the United States is no longer “on sale” so foreigners do not find coming to the U.S. such a bargain anymore.
- Construction costs and replacement costs are becoming less relevant to value and financing of hotels.
- This is a great time to renovate hotels.
- The optimists look for recovery in late 2009. The moderates hope for recovery in late 2010. More people are talking about recovery in 2011 and beyond.
- Smith Travel’s Mark Lomanno thinks that Lehman going out of business was an equivalent “event” to 9/11 in terms of its impact on the lodging industry.
- Hotel equities were decimated in 2008. Even the most bulletproof names are trading at 60% off their 2008 highs. Some are down 99% from $30 to $1.00 or $1.50. Public stocks are trading at cap rates of 10.25 after 4% reserve. By this formula, some stocks should be trading at less than zero, but that is impossible.
The heart of the problem — How do you establish hotel value?
The crux of the current crisis is: no one is prepared to lend or make a significant move until they understand valuations. Everything seems to be in freefall. It is not even possible to predict when we will understand valuations again.
The value of assets is likely to be determined by government action through the TARP or the bailout. None of the bailout money has yet gone to buy assets. It has all gone to shore up the capital of major banking institutions after the write downs they had to suffer at the end of 2008.
What private equity wants to bet against the government’s hundreds of billions or even trillions of dollars? How will the government programs value assets? That is a crucial issue that needs to be resolved. Some think it will take something like the “RTC-2” to jump in and clean up all the assets before we can find a new base to understand values.
These are “interesting times.”
To better understand how this all affects the hospitality industry, please see some other recent articles listed below:
Hotel Lawyer: Uh Oh! Now they are using the “D” word
Hotel Attorneys with the latest “updates from the field”
Hotel Lawyers: How do we pay for this? And what happens next?
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $87 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. Who’s your hotel lawyer?
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Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $125 billion of hotel transactions, involving more than 4,700 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.
Jim Butler is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.
Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $87 billion of hotel transactional experience, involving more than 3,900 properties located around the globe. In the last 5 years alone, Jim and his team have assisted clients with more than 100 hotel mixed-use projects — frequently integrated with energizing lifestyle elements.
Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.
Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.