1 February 2010
Please see “troubled hotel loans – workouts, bankruptcies & receiverships” for the latest articles on troubled hotels.
Hotel Lawyers with grim reports from the field. If lenders are looking for some encouraging news on their distressed hotel asset sales prospects, they are not going to get it anytime soon. That is what the Atlas 2009 Year End Hotel Survey shows, but it does offer some valuable tips for dealing with continued distress in 2010.
Here is an executive summary.
Atlas Hotel Survey 2009 Year End Summary
Atlas Hospitality Group specializes in the sale of California hotels. It was founded by Alan X. Reay in 1997. Since its inception, Atlas has sold more hotels in the state than any other brokerage firm. Their annual survey of hotel transactions covers only California hotel deals, but we believe it is reflective of consistent national trends.
The 2009 annual survey has just been released, and it showed dismal results for 2009:
- The number of California hotel sales dropped to a new low, plunging 52% from 2008 and 73% from 2007.
- The dollar volume dropped 75% from 2008 and 85% from 2007.
- The median price per room declined 30% from 2008 and 38% from 2007.
- The median price per room in Southern California dropped 40%.
- The median price per room in Northern California declined 24%.
- Los Angeles County, down 82%, had the steepest median price per room drop.
- Los Angeles County had the biggest drop in transactions, down 90%.
Sadly, the year end results validate the predictions made by Atlas in early 2009, except that the number of hotel sales were down 51% (as opposed to the predicted 10-20% decline), and median prices per room declined 30% (against a forecast 20-40% fall).
What is happening?
I asked Alan Reay, President and founder of Atlas Hospitality Group, what he thought was causing the record low number of hotel transactions his survey reported. Alan attributes the dearth of transactions to 2 factors:
- Sellers are not pricing properties to market.
- Lenders continue to delay definitive action to realize on their collateral, whether by foreclosing, appointing a receiver to sell the property, or selling REO.
Alan says that even though the number of foreclosed hotels now equals 73% of the entire number of 2009 sales transactions, the vast majority of these have not been resold by lenders.
Alan says unequivocally that the restraint on sales is not liquidity or lack of buyers. It is due to lenders and other potential sellers holding back and waiting, or pricing the properties unrealistically.
What will 2010 bring for hotel sales?
Given the success in predicting what happened in 2009, what does Alan Reay predict for 2010? Here are the highlights:
- Sales activity will increase dramatically from the 2009 record low; we expect to see 150-175 transactions.
- Dollar volume will also increase, almost double 2009’s number.
- Prices will decline 10-20%.
- The sale of hotel loans will rise substantially.
- Lender sales will account for over 50% of transactions.
Click here to download a copy of the Atlas 2009 Year End Summary, and if you would like to speak directly with Alan Reay about the Atlas Surveys or get a copy of them, he can be reached at (949) 622-3409, firstname.lastname@example.org or www.atlashospitality.com. You are also welcome to contact me at email@example.com.
What do the hotel lawyers at JMBM’s Global Hospitality Group® advise?
Do the math yourself! Run a present value analysis of likely cash flows on 3 alternate scenarios. Decide whether you have the stamina and capital for a long haul if you intend to hold. Or decide that you are a gambler.
Be realistic. And if you are going to be a seller, then sell quickly. Many experts see values continuing to decline until at least 2011 or, more likely 2012. Some think values recover peak levels by 2014 and others think recovery to 2007 levels is TWO real estate cycles from now (given that a typical hotel cycle lasts 7 to 8 years, this could possibly be 10 to 16 years, i.e. 2019 to 2025).
We would be happy to help you evaluate your options and develop the best plan from here.
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 have developed innovative solutions to unlock value from troubled hotel transactions. Who’s your hotel lawyer?
Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $87 billion of hotel transactions, involving more than 3,900 properties all over the world. For more information, please contact Jim Butler at firstname.lastname@example.org or 310.201.3526.
Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why.
JMBM’s troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE “JMBM SAVE program”.)
Whether it is a troubled investment or new transaction, JMBM’s Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.