Shift to a Buyer’s Market

Hotel News now is reporting that panelists at this year’s Hospitality Law Conference talked about the changing hotel transaction market and how sellers can improve their position during deals.

By: Bryan Wroten
Published: March, 2016

HOUSTON—There’s speculation in the hotel industry that leverage has shifted and the market has shifted away from sellers to the advantage of buyers.

In the “Optimizing the exit: Capturing total value on the reversion sale” session of the recent Hospitality Law Conference, panelists discussed where the cycle stands, present and future hotel valuations and potential pricing.

Market shift
Speaking as a broker, Drew Noecker, VP at CBRE Hotels’ Houston office, said it’s always a sellers’ market. CBRE has seen, especially in the past five months, that lenders in the hotel space have decided it’s time to rein in financing, he said. While leverage levels might have been 70%, they’re now about 60% to 65% to do the same project.

“There’s a reduction of leverage and the headwinds of a smaller number of buyers in the buying pool right now,” he said. “Share prices have gone way down; (real estate investment trusts) have lost a lot of ability to do share repurchases.”

Richard Sprecher, VP of business development at Aimbridge Hospitality, said a broker told him the traditional buyer isn’t around anymore and that he’s talking with wealthy families and nursing homes to get them into hotels.

In his own work, Sprecher said he spoke with a group of radiologists in Alabama who were interested in buying a Holiday Inn.

“After I talked to them, I said I don’t think it’s going to be right for them,” he said. “Bringing in non-hotel people into this space can be a downfall.”

Sellers want to take the right approach, Noecker said. He suggested sellers find a group that understands hotels and the opportunities that come with them.

“You have to focus on that and target the right people,” he said. “It’s harder to find the right buyer right now.”

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