Sleeper_March-April

Sleeper March/April 2009
Head Ofﬁce
Hotel Analyst www.hotelanalyst.co.uk
Bank liquidity continues to worry
Operators still hungry to do deals despite lack of lending and market inertia
Bank liquidity is set to remain a term view is where you need to come been until the summer of 2007 is foolish. the next four years, it is estimated. And
central problem in the current recession, from,” he added. “We are mindful of not It will be a long time before liquidity on unlike the 1990s when debt was relatively
according to a panel speaking at the 4th damaging our business unnecessarily.” that level returns, if it ever does. And for straight forward the complex structures
New Year Hotel Investment Summit held Speaking separately to the panel, bigger deals, £50m or certainly £100m today present bigger challenges.
January 13 in London at the Mayfair Philip Camble, a Director of Cushman plus, debt remains largely absent. For example, talking to the owners of
Hotel. & Wakeﬁeld Hospitality, one of the The big hitters, among which Foxon securitised bonds to reach a settlement is
And until banks start lending again the co-organisers of the event, said that and Prince can include themselves having hugely more problematic than negotiating
view was that “we will bump along the currently there was a “toxic combination” sat on either side of the £1bn transaction with a bank or even group of banks.
bottom” in the words of Charles Romney, for hotel values of rising yields and falling for 73 UK Holiday Inns in 2006, are There are certainly challenges
from co-organisers CMS Cameron income but this would ultimately lead to waiting for the return of syndicated debt. ahead. According to CB Richard Ellis,
McKenna. transactions coming back. But even if this were there, it is commercial property is now 35.5%
Marten Foxon, formerly of Broadreach He noted that yield spread between doubtful the transaction market would cheaper to buy today than at its peak in
Capital and InterContinental Hotels, leases and management contracts had leap into action. Talking to a well the summer of 2007. And this fall has
said: “There is evidence that people were widened to 1.7% in 2009 from 0.7% in capitalised Asian operator, his view was largely been driven by yield shifts as
still in denial [about the severity of the 2007. There was currently “operator to sit on his hands and wait until the end rentals have until this autumn held up.
recession] up until Christmas. Banks hunger” to do deals, he argued, pointing of the year when he expects there to be Until the trading outlook becomes a
claim they are still open for business, to the lease Starwood was prepared to “more opportunities”. little clearer, there seems little to tempt
they are not.” sign for the W in Leicester Square. In In fact, this debate is a chicken-and- buyers to back into the market in the
Foxon did not believe that a high addition, even major brands were now egg causality dilemma. When there is short-term in the face of near certain
proﬁle failure of the likes of Le Meridien offering equity stakes, key money, lower sufﬁcient momentum behind the belief further falls in value.
was needed to start the transaction fees and stepped fee structures. that we are near the bottom of the value
market moving. He believed that the bid plunge, money of some form will be
/ ask spread had come down over the last HA Perspective: available to do the deals.
Having read these four
few months. Banks are, not surprisingly, being There are early signs of a thaw in the pages of Hotel Analyst
“Availability of debt is the issue. If you ﬁngered for most of the blame in the credit markets, particularly in the US.
we hope you want to ﬁnd
have cash then you can do deals. Until current crisis. Even in Europe, notably the UK, some
out more. Hotel Analyst is
liquidity returns people will be sitting on But there is a major issue in terms of indicators point to a loosening. LIBOR, for
the sidelines,” he said. inertia. In a falling market, buyers are example, is now down to 2.25%, a spread
the news analysis service
Ryan Prince, Vice Chairman of Realstar rewarded for not proceeding. of just 75 basis points about the Bank of
for those involved with
Group, said that without leverage few Talking to attendees at the event England Base Rate. Encouragingly, the
ﬁnancing hotel property
deals will be done, as even supposedly revealed a range of views on the bank cut of 0.5 pts in the Base Rate of early
cash-rich buyers such as sovereign lending environment. A new business January was fed through pretty quickly.
or hotel operating
wealth funds require leverage to make a manager from a leading UK bank (yes, And an optimist might argue that given companies. It is designed
deal work. they do exist still) was adamant that the severity of the crash since September
to understand, as well as
He claimed that there is still an his bank was doing deals on reasonable last year, the momentum ought soon to
report the news.
unwillingness to transact on the part of terms (that is more like those around in be there. But optimists seem a bit thin on
vendors. He cited an example of making 2003 than 2007). He did admit that lot the ground right now.
an all cash offer to an administrator only sizes had to be small, however. Joining the pessimists is investment
to see it rebuffed. A banker with a prominent Irish bank Close Brothers which in mid
The events that will crystallise activity institution said, however, that only deals January warned that losses in commercial
was reﬁnancing, he added. He forecast with existing clients would be considered property could cause another credit
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that trading would be poor until the third and then 50% leverage was as high as he crunch. In the UK the bank predicted
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quarter of 2010. would go. that there could be a fall of £140bn in
David Orr, CEO of City Inn, said that It is clear that a number of adjustments values and a consequent £125bn debt
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he had the ﬁnance for his three current still need to be made in how people are reﬁnancing bill. hotelanalyst.co.uk
developments in Amsterdam, the City of approaching this market. Expecting bank About half of the £250bn of UK
or call 020 8870 6388
London and Leeds. “Looking at the long- lending to be there in the fashion it had property debt needs reﬁnancing over
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