ALIS Attendees Ask: Where Are The Deals?

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As the lodging industry moves sluggishly toward recovery, the common wisdom was we would now be knee-deep in hotel transactions of all sorts—individual properties, portfolios of hotels and even a chain or management company or two. With plenty of hotel real estate in distress and a pile of equity money burning holes in a lot of pockets, I and many others thought dealmakers would be hard at work by now linking buyers and sellers.

It just hasn't happened, and no one I talked to at last week's ALIS Conference in San Diego had a definitive answer as to why. Here are a few possibilities:

• Hotel owners have yet to come to terms with the naked facts that their properties are no longer worth what they think is fair value. In fact, in many cases, these hotels aren't worth what the owners still owe on them. On the other side of the coin, a lot of erstwhile buyers think they can pick up product on the cheap, like 20 cents on the dollar. When the two sides meet somewhere in the middle, deals will begin to flow.

• Banks and other lenders have little appetite to own real estate—especially assets as complicated as hotels. And if real values are anywhere close to the 20 cents on the dollar buyers think they are, then the banks don't want these troubled assets on their books.

• Another variation on this line of thought holds that banks realize values are way down and the hotel industry is beginning to rebound—albeit very slowly. Their rationale may be to wait until hotel fundamentals improve significantly and values rise concurrently, and then sell.

The real answer, of course, is probably a blend of these and other reasons. A few things we know for sure: hotel real estate is distressed, a lot of lenders are holding bad paper and a lot of private money (one estimate says $40 billion) is waiting to make investments. This all points to a scenario of increased dealmaking. Everyone thought it would have happened by now, and no one knows when the current trickle will become a torrent.

It will be interesting to watch once the dam breaks.

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