Hotels Poised for Picking? Investors Appear Poised To Take Advantage of Opportunities in the Distressed Hotels
January 27, 2010 in Uncategorized
Hotels Poised for Picking?
Investors Appear Poised To Take Advantage of Opportunities in the Distressed Hotels Arena This Year
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January 27, 2010
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Private equity firms and corporations seemed poised to take advantage of opportunities in the distressed hotels arena this year.
In the past week, an affiliate of Lone Star Funds agreed to acquire Lodgian Inc. for $270 million, including assumed debt. And separately, at least two hotel operating companies announced plans to ramp up their acquisitions this year.
Lodgian is one of the nation’s largest independent hotel owners and operators. The company currently owns and manages a portfolio of 34 hotels with 6,401 rooms in 20 states. Lone Star will acquire all of the outstanding common stock of Lodgian for $2.50 per share in an all-cash transaction. The price represents a premium of 67.2% over Lodgian’s average closing for the past month. The transaction is expected to close during the second quarter of 2010.
In Washington, DC, CapStar Hotel Company LLC announced that it will ramp up its acquisition program this year.
“We have been concentrating on renovating, repositioning and asset managing our current three-hotel portfolio, waiting for the operating fundamentals to recover, the credit markets to open, and acquisition activity to pick up,” said Paul Whetsell, president of CapStar. “We believe we are transitioning into that phase now, and while it is difficult to pinpoint timing, we expect to see more attractive opportunities in the coming months.”
The company has promoted Gary Klett to vice president of development to head up the initiative. He will be responsible for sourcing, negotiating and closing transactions.
“We are focusing on upscale, branded and independent hotels with the potential to operate as a 3.5- to four-star asset, with a particular focus on life-style properties, ranging in size from 150 to 500 rooms,” Klett said. “We are looking primarily in the major urban markets in the U.S. and Canada, where barriers to new competition are high.”
In Houston, Wedge Real Estate Holdings Inc., with diversified holdings in hotels, offices and self storage properties, announced it plans to intensify its investment activities in the hotel industry. It appointed veteran hotel industry leader Brian Stage as president and CEO of the Wedge Hotels Corp.
“The company’s financial strength and commitment to grow present an exciting opportunity to expand this business at an opportune time in the economic cycle,” Stage said. “Our goal is to double the size of the current Wedge hotel portfolio in the next two years and triple it by 2013.”
Stage said that he is actively seeking hotel investment opportunities in the Northeastern United States and Texas, where the company already has assets, and that he will seek acquisitions in other parts of the country that enable Wedge Hotels Corporation to develop properties in geographic clusters.
The outlook for 2010 is still somewhat of a topic for debate, though, with some industry prognosticators projecting continued declines in transactions.
“The lending community has reached the stage where they no longer can delay foreclosure issues,” said Chad Crandell, president of Capital Hotel Management, a hotel asset management and investment advisory firm in Beverly, MA. “We certainly will see more foreclosures in 2010 than any year since the RTC days of the early nineties.”
As the number of distressed hotel assets continues to rise, many with foreclosure eminent, an increasing number of hotel lenders will be transitioning to a much more active ownership role within an extremely stressed environment, Crandell said. The current lack of available financing, coupled with a continued decline in performance projected for at least the first half of 2010, could likely push the transaction window well into 2011 or 2012.