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quite as dramatic. Even so, hotels of the business underpinning the it was reported that the St
Values bounce in the Christie index did suffer a asset. Regis Monarch Beach resort in
19.5% drop in 2009 alone. Going forward, the sustainability California, made infamous a year
back Good quality hotels are of the current rebound in capital ago as the destination for a trip by
maintaining robust values. The values will, partly depend on the executives from AIG shortly after
Property is bouncing sale and leaseback deal struck by strength of the recovery. And it received an $85bn bailout, is set
back from the downturn Whitbread at the end of December there are as many views on the to sell for $250m.
with remarkable strength. shows this. macroeconomic outlook as there Published reports suggest that
According to Investment M&G Investments is paying are economists. Citigroup received less than half
Property Databank, UK £36.5m in cash for five Premier But it is not just about the of the $70m mezz loan it had
commercial property showed Inns and adjacent restaurants. The economy. One thing that this made for the hotel, as senior
its fastest capital growth since price is a net initial yield of 5.5% recession has shown so far is that debt comprised about $220m.
it began its index 23 years ago. on the 25 year leases. The hotels a massive economic problem does Citigroup took back the property
And surely hotels, which are are being held in a Guernsey Unit not automatically translate into in July from its original owners.
outside of this index, will be Trust set up by the M&G Secured a massive problem for the hotel Also in November, the
showing similar resilience. But the Property Income Fund, according industry. Royal Institution of Chartered
fear is that the bounce will prove to law firm Lawrence Graham Surveyors offered support to the
temporary and that there will be who advised Whitbread on the Vulture idea of growing distressed sales.
further capital falls to come. deal. It said more than 80% of the 25
According to Christie & Co, Globally, other deals exception countries it surveyed saw a rise in
hotels have dropped in value by demonstrate the robustness of the volume of distressed sales in
34% since the peak in the third hotel values. Orient Express sold Starwood Property Trust, the the third quarter. South Africa, the
quarter of 2007. This compares to the Lilianfels Blue Mountains US listed vulture fund set up US, Portugal and France showed
a drop of 44.2% in the IPD index in December for A$21m by Barry Sternlicht, invested the biggest leap in distressed sales
of offices, industrial and retail (US$19.3m) which represents $144m in its first 60 days. But in the third quarter. The RICS
property. 17 times 2007 EBITDA and 23 more interestingly Sternlicht survey showed agents expecting
The property consultants said times 2008 EBITDA. says the pipeline of deals looks the US, Russia, Spain and Ireland
at the launch of their Business set to exceed $1bn. to show the biggest rise in volume
Outlook 2010 publication HA Perspective: King Sturge, It increasingly looks, however, of distressed sales in the final
in January that they expect in its property predictions event that Sternlicht is the exception to quarter of this year.
transaction levels to have reached held at the start of this year, warned a rule that says vulture funds will Property magnate Sam Zell,
bottom. So far in this recession, of the danger of a false dawn for largely disappoint in this cycle. speaking at a real estate investment
the drop in levels of transactions the property investment market. The forecast Starwood deals conference in New York, made
has mirrored that of previous It said that although this year may will be across property sectors clear he is more sceptical about
recessions in the 1980s and 1990s produce the best returns for four but are expected to feature hotels a general commercial property
and, if the pattern is repeated this years, there may be a collapse in prominently. One of the done crash. But he did forecast that
time around, a gradual recovery is values again in 2012. deals includes $10.9m of bonds hotels in this cycle would suffer
in prospect. The prevailing theme about the secured on a New York hotel. a fate similar to that endured
The swing in the IPD index period ahead is of a two-tier market, Sternlicht is putting his by the office market in the early
is wilder than that exhibited by with prime property maintaining reputation on the line to predict 1990s. A fate summed up by
Christie & Co’s hotel index partly value and anything outside of this he can strike deals when current Zell as a “massacre”. Zell spoke
due to the nature of the deals suffering. consensus forecasts are for lean on the same theme earlier in the
and valuations tracked. IPD So far, it is not entirely clear pickings. month, predicting that hotels of
is focused on large investment that the gap is that wide. Prime He has already secured $171.6m “lesser quality” would go for less
deals but the Christie index is usually applied in loose terms out of US taxpayer backed TALF than half price. The appetite for
picks up smaller owner operator and seems to be applicable (term asset backed securities loan vulture funds generally appears
transactions as well as the larger whenever something fetches a facility). This money was raised to be on the wane. Both Apollo
portfolio deals. strong multiple. Some clearly in partnership with a Starwood Commercial Real Estate Finance
The dearth of supply has helped less prime properties have seen Capital fund and has an average and Colony Financial cut the
drive up the IPD index. And while values dive dramatically but often rate of 3.82%. initial targets for their public
supply constraints are helping to these are situations where they It certainly looks as though offerings in half in September.
support hotel values as well, the had seen their values chased up more assets are trading in the US Other would-be vulture funds
crash and rebound has not been unrealistically given the quality than in Europe. In mid November have postponed their offerings.
MARCH / APRIL 2010 WWW.SLEEPERMAGAZINE.COM WWW.SLEEPERMAGAZINE.COM MARCH / APRIL 2010 105
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