In the hotel industry, opportunistic investors are ready to pounce. The gap is narrowing between what sellers expect to receive and what buyers want to pay, says Jack Corgel, managing director of the hospitality research group of PKF Consulting in Atlanta.

Investment interest in the faltering property sector has even led to the formation of a new service offering — Hospitality Asset Recovery Services — at New York-based Cushman & Wakefield. Through this service, the firm assists both investors and hotel owners in the acquisition and disposition of distressed hotel properties and mortgages collateralized by lodging facilities.

"The bottom line is that our clients are asking to do this — they’re seeing opportunity and looking for deals," says Daniel Lesser, senior director of C&W’s Hospitality Industry Group. Lesser is leading the effort along with Michael Rotchford, senior managing director of the structured finance group.

Crisis ahead?

The hotel industry began to waver at the beginning of 2001 and its shakiness was compounded by the Sept. 11 terrorist attacks on New York and Washington, D.C., Lesser says. The impact of Sept. 11 on travel exacerbated the situation, too, Corgel explains.

"We are obviously in a big crisis here in the hotel industry," Corgel says. "We’ve done some stress cases in our database to discover that at least a 1/3 [of hotel owners] could face pressure in covering their debt." Even so, he says that doesn’t necessarily mean that the sector will go into default.

However, delinquencies are becoming a problem. "Delinquencies have risen considerably over the last 12 months in the 4% to 5% range," Corgel says.

"There’s quite a bit of posturing to get ready for a major fallout," Corgel says. "Will that fallout occur? That’s the million dollar question." One positive note is that banks are exercising forbearance. For example, Wyndam wasn’t forced to liquidate assets during their debt crunch, according to Corgel. "The amount of hype regarding lenders’ willingness to release loans and assets is a little overstated."

Lesser and Corgel agree that the hotel markets hit the hardest are the "fly-to" markets such as New York, Miami and San Francisco. The "drive-to" markets are doing better because people are staying closer to home and are doing more driving, Corgel says.

On the transaction side, some deals are being re-priced post-Sept. 11. Blackstone Real Estate Advisors purchased Homestead Village, an extended-stay lodging company from Security Capital for $740 million. The deal, which was already in the works prior to Sept. 11 was originally valued at $900 million, Lesser explains. But another transaction, the purchase of the Vail Marriott Mountain resort by Vail Resorts was closed at the original price of $49 million.

Corgel says this year will continue to be dismal, but he’s looking for an upswing in 2003. Lesser expects the hotel industry to reach its peak again within 5 to 10 years. He says "buying for a 5- to 10-year outlook is actually pretty good."