Hotel investors tiptoe back into buying game

Want to buy a hotel? 2010 may be just the time.

Hopes for an eco­nomic turn­around are prompt­ing some hotel investors to get back in the long-dormant acqui­si­tion game, lay­ing the ground­work for what could prove to be an active acqui­si­tion mar­ket next year.

“Like most com­pa­nies, we did not acquire any­thing in 2009,” said Leslie Ng, chief invest­ment offi­cer for Arlington-based Inter­state Hotels & Resorts Inc.“But we are plan­ning to get active once the mar­ket heats up, and I think there will start to be some pickup in activ­ity in 2010.”

Inter­state isn’t the only one. Hos­pi­tal­ity com­pa­nies — par­tic­u­larly resur­gent real estate invest­ment trusts — have raised funds and cleaned up their bal­ance sheets so they can pounce on a long-anticipated wave of dis­tress sales across the country.

In its third-quarter earn­ings report, Bethesda-based Host Hotels and Resorts Inc. said it expects a num­ber of debt-saddled hotel prop­er­ties to go up for sale because notes will come due and own­ers might not be able to refi­nance in the still-harsh cap­i­tal mar­kets for com­mer­cial real estate.

“We believe these oppor­tu­ni­ties will not reach the mar­ket until 2010 or sub­se­quent years as dis­tressed own­ers and their lenders will first explore other options,” Host said. “How­ever, we have been actively explor­ing poten­tial acqui­si­tions and expect to be able to take advan­tage of these oppor­tu­ni­ties over time.”

http://washington.bizjournals.com/washington/stories/2009/11/23/story1.html?b=1258952400%5E2472291

Host’s state­ment comes after a full year of play­ing the role of seller, not buyer. Fol­low­ing a 59 per­cent drop in net income in one quar­ter, Host shored up its bal­ance sheet in March by sell­ing its Hyatt Regency Boston prop­erty for $113 mil­lion. It then unloaded four other non-core prop­er­ties in the third quar­ter for $90 mil­lion: the Sher­a­ton Stam­ford, Conn.; Hanover Mar­riott in New Jer­sey; Wash­ing­ton Dulles Mar­riott; and Boston Mar­riott Newton.

Bethesda-based Dia­mon­dRock Hos­pi­tal­ity Co., a real estate invest­ment trust, is also in a nice posi­tion to take advan­tage of acqui­si­tion oppor­tu­ni­ties next year. It com­pleted a

$75 mil­lion sec­ondary offer­ing ear­lier this year. In a state­ment, Dia­mon­dRock CEO Mark Brug­ger said the suc­cess­ful offer­ing put the com­pany in a posi­tion where it has no cor­po­rate debt and has more unre­stricted cor­po­rate cash, mean­ing it can take advan­tage of oppor­tu­ni­ties that come on the market.

Through the third quar­ter, national hotel sales vol­ume was $2.1 bil­lion, with 123 hotels sold, accord­ing to Peter Slatin, edi­to­r­ial direc­tor of New York-based Real Cap­i­tal Ana­lyt­ics Inc., which tracks com­mer­cial real estate trends. That’s 75 to 80 per­cent of last year’s vol­ume, Slatin said.

Just two hotels have been sold in D.C. so far this year — the Embassy Inn and the Wind­sor Inn — for a total of $11.25 mil­lion. Six were sold in the Mary­land and Vir­ginia sub­urbs for an addi­tional $77.9 million.

In 2008, four hotels were sold in D.C. for $301.5 mil­lion and four oth­ers in the sub­urbs for $122.6 million.

“Things have come to a screech­ing halt,” said Scott Berman, a prin­ci­pal with New York-based Price­wa­ter­house­C­oop­ers LLP spe­cial­iz­ing in the hos­pi­tal­ity industry.

Nation­ally, Real Cap­i­tal Ana­lyt­ics is cur­rently track­ing about $30.2 bil­lion in dis­tressed hotel assets. Of those, the only D.C. hotel is the Water­gate — it was bought out of fore­clo­sure by its lender in July. Also being tracked are 30 oth­ers in the region.

“Investors are smart enough to know if they just wait until the des­per­a­tion point, they will be able to get good assets,” Slatin said.

One local com­pany, Bethesda-based Urgo Hotels, already has made a deal for a dis­tressed prod­uct. It just pur­chased the Resort at Singer Island from Bonita Springs, Fla.-based WCI Com­mu­ni­ties through bank­ruptcy pro­ceed­ings for $7.1 mil­lion. Com­pany exec­u­tives say they will step up acqui­si­tions next year.

Ng said a big focus of Interstate’s acqui­si­tion work will be dis­tressed prop­er­ties where banks have become involved.

“We’ve begun work­ing with a lot of lenders and spe­cial ser­vicers who have asked us to take over man­age­ment of these prop­er­ties,” Ng said.

Inter­state has money to invest in acqui­si­tions but will most likely team up with exist­ing part­ners, includ­ing pri­vate equity funds and high-net worth indi­vid­u­als. Since the cap­i­tal mar­ket teetered in 2007 — and crashed in Sep­tem­ber 2008 — lenders have been requir­ing more equity.

“We have part­ners who have been sit­ting on the side­lines, wait­ing for these oppor­tu­ni­ties,” Ng said..

Some com­pa­nies will still watch and wait. In an investor call, Arne Sorensen, pres­i­dent ofMar­riott Inter­na­tional Inc., said the com­pany is mon­i­tor­ing invest­ment trans­ac­tions to see when they start to increase. But the goal is for its part­ners to pur­chase the prop­er­ties, while Mar­riott con­cen­trates on obtain­ing man­age­ment or fran­chise contracts.

http://washington.bizjournals.com/washington/stories/2009/11/23/story1.html?b=1258952400%5E2472291