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It is a seller’s market

It is a seller’s market

What happened to the Great Recession? Just yesterday hotel revenues and EBITDA thresholds fell faster than we had ever experienced historically.  Commercial real estate values plummeted. The group customer vanished and took high rated corporate rates and strong ancillary spend with them, only to be replaced with deep discount leisure transient. We still had two years of at or near record new supply to absorb.

A dearth of transaction activity in the past two years left many investors unsatisfied, even those that were patient and avoided train wrecks. Many expected a plethora of distressed hotel projects and corresponding entry prices, only to be left wondering what happened to that pipeline. Many are still waiting.

Evidently, all that pain is now behind us. Paltry revenue rebounds off of a deep trough trendline? Minor rate increases in major urban markets? Positive expectations for 2011 net income? Chicken feed.

One only needs to consider recent robust hotel real estate values, bond prices, and public lodging multiples.

My prior post suggested that it was a matter of a shortage of quality product, perhaps overshadowing the notion that there was just too much capital on the sidelines. Our perpetually accommodating government continues to print money and preach forbearance. Some lenders and servicers evidently don?t need debt service payments, nor do they need to perfect their security interests even in a default.

At this point, it does not really matter. It is officially a seller?s market for quality assets in primary markets. Bring it to market; it?s a yield starved universe.

Hurry up, though, because LIBOR rates might actually sustain a rise one day, or hotel default rates and maturity dates eventually could pile up, or lodging multiples could contract faster than the pace of EBITDA recovery.

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