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HB ON THE SCENE: Investors, Lenders Analyze Credit Crunch At 2008 Meet The Money

Thursday May 8th, 2008 - 12:45AM


Jim Butler, JMBM
HENDERSON, NV— The affects of the credit crunch and the cyclical hotel industry downturn have been discussed across the lodging industry ad infinitum for the past few months, with doom and gloom scenarios the subsequent by product. Today, at the 18th annual Meet The Money conference here, it seemed as if the hotel investment and lending community finally came to grips with these facts and, more importantly, made the first proactive steps toward actually figuring out how to handle it all. Relocated to a new venue this year from Los Angeles to Henderson, NV’s Green Valley Ranch Resort, the event began, as usual, with Jim Butler, chairman of the global hospitality group at Los Angeles-based Jeffer Mangels, Butler & Marmaro LLP, which runs this annual hotel debt and equity financing conference. Butler began by noting that hotel financing is clearly difficult to obtain, but he optimistically added that many of the lenders attending the conference expressed to him that they are indeed still financing hotels. Before those lenders took the stage, Smith Travel Research’s Bobby Bowers and PKF Consulting’s Mark Woodworth also optimistically displayed why this hotel downturn will not be quite as severe as previous ones. Backing up that assertion is the fact that supply will remain in check, especially because new construction financing has slowed, and the fact that hotel operating fundamentals are still substantial. Furthermore, according to Woodworth, November of 2008 will be the last trough of this industry downturn and 2010 is shaping up to be a recovery year. Meanwhile, Dan Lesser of CB Richard Ellis noted in his presentation that despite hotel investment financing obstacles it is actually a great time to buy hotels. Surprisingly, the lenders featured in the next session titled “Who’s Funding Now? Why? When & How?” were similar to Lesser in their relatively non-bearish, but-not-quite-bullish stance. Most noted that with the right, experienced borrower in a transaction in the right market with a good brand, debt can be obtained, albeit it at typically around 65% loan-to-value, a far cry from the upcycle’s 90% LTV deals. But some of the lenders made the point that while underwriting is definitely tight at the moment as a reaction to the capital markets meltdown, 65% LTV— and not 90% LTV— is closer to the historical norm for the hotel industry anyway. Furthermore, some noted that the lenders that underwrote on future performance at 90% LTV are the ones no longer around or are currently on their way out. “Most of us up here on this panel didn’t get caught up in the crazy things that occurred,” explained Adam Greene of Textron Financial. “So now we’re almost reintroducing ourselves to the community again and showing we’re still here.” However, despite all the talk of how good deals will get done with a dose of creativity on the borrowers’ and lenders’ parts and that time will heal the debt market, David Soares of Berkshire Capital Financial noted that this may not be the last credit crunch. “Wall Street is still unraveling all of its paper and it will be three years before the bond markets comes back confidence wise, but the worst case scenario for everyone involved will be if it all comes back with high leverage deals again,” he said. “By then people will get more aggressive again with their underwriting. You see, in the capital markets we tend to act more like lemmings. Of course there are cliffs we inevitably reach. So this will all probably happen again some day.”

—Christopher Ostrowski