NEW YORK CITY—Members of the Lodging Industry Investment Council appear more than content with the direction the hotel industry has taken lately. But that doesn’t mean they’re going to fall asleep behind the wheel.
“I’m not sure there is anything in life that is perfect,” Bill Blackham, CEO of Supertel Hospitality, said during a LIIC roundtable event that was sponsored by Hotel News Now. “But you try to take measured steps along the way.”
During a meeting the day before the beginning of the 37th annual NYU International Hospitality Industry Investment Conference, LIIC members kept circling back to three main issues that they are spending a lot of time working on and thinking about these days.
1. The financing climate
Blackham said the financing climate appears to be solid. Acquisition financing also appears easy to come by.
“Underwriting standards are better than they were going into the last crisis,” he said.
The topic of conversation soon turned to a discussion of the wall of commercial mortgage-backed securities maturities that could soon come crashing down on the hotel industry. CMBS tracker Trepp recently reported that $41.5 billion of CMBS debt is set to come due by 2017.
Paul Nussbaum, the founder and chairman of Waramaug Hospitality, said the CMBS market appears healthy despite all of the looming maturities.
“There should be more than enough capacity to refinance” the CMBS debt, he said. “This should be a really good time for lenders. As long as the CMBS market is robust, you’ll be all right, even if (owners) have to pay it down to avoid a foreclosure.”
Blackham agreed with Nussbaum’s assessment, adding that CMBS maturities were more of an issue back in 2009 and 2010. He did say, however, that “some amortizations could be tricky.”
2. Incoming investment
With the growth the industry has seen during this most recent cycle, a lot of new players have joined in to try to grab their share of the action. Many of these new market entrants are from overseas, LIIC members said.
“Chinese investment is really something to watch in the industry,” said Jim Butler, a partner and chairman of the global hospitality group at law firm Jeffer Mangels Butler & Mitchell. “Fifteen years ago, they had nothing invested in us. They have, like, $200 billion invested today. It’s gone from nothing to huge.”
- For more on Chinese investment activities around the world, read the HNN special report: “Chinese outbound investment takes flight.”
Despite the heated investment activity, Butler said he does not see a deal bubble forming. “They’re using the same rationale an American investor would use,” he said.
Blackham said the second biggest shareholder in Supertel is a Chinese national. “That blew me away,” he said.
Tom Naughton, the chief investment officer at Clearview Hotel Capital, said Asian investors are having a big impact on the transactions market.
“I’m just telling you, everything you list in an urban market, whether it’s Los Angeles or San Francisco, is getting tremendous Asian buyer interest,” he said.
Nussbaum said the deals market in California is getting a touch too hot for Waramaug’s liking.
“We don’t look in California,” he said. “It’s the one place we have red-lined. It’s the one place we know we can’t compete.”
3. PIPs and renovations
LIIC members also discussed property improvement plans and renovations. And like most other facets of the industry, the renovation scene is an active one, the LIIC roundtable participants said.
“We always have a lot that we’re working on,” said Ben Brunt, principal and executive VP of acquisitions and development at Noble Investment Group. “It’s certainly much more expedient to get anything done today than it was two or three years ago. It depends on what the work is. Also, the labor component is what we see as really driving our costs.”
Nussbaum said brands are aggressively pushing PIPs. “There have been times where we spent more on the PIP than we did on the acquisition cost,” he said.
It’s not always easy to get renovation work done, Nussbaum said. “There are strikes on the West Coast and then you have materials sitting in a box on the West Coast for months.”
Blackham said it’s important to be clear in communicating a start date for construction projects. “If you’re a little flimsy in when those dates are going to be, it’s difficult to rely on what (construction crews) give you,” he said.