ATLANTA—Optimism ruled last week’s Hunter Hotel Investment Conference in Atlanta, with many investors and hotel owners saying they are buying and building again in a rebounding market with attractive interest rates. Many assets will need to refinance soon, and many are in need of cash to upgrade aging facilities.

More than 52 percent of the attendees at last week’s hotel industry conference said they would build a hotel this year, according to Teague Hunter, president of Hunter Hotel Advisors Inc., of Atlanta.  The hotel industry “can feel the money coming back,” said Hunter, who moderated a panel on buying and selling hotels.  

Michael Medzigian, chairman and managing partner, Watermark Capital Partners, Lake Forest, Ill., said his group closed on seven similar assets in last month and a half, and prefers assets in larger markets.

“We are seeing the lowest debt rates on hotels I've seen in my career,” said Medzigian. “You assume cap rates are going to follow. I think cap rates are pretty aggressively low.” Cap rates are“aggressive in major markets.” He said there are “some great buys” in small markets, but if the “deal is small, I don't think an 8 cap does it.”

Jim Merkel, president and CEO of RockBridge in Columbus, Ohio, described opportunities in “delayed capitulations” with loan extensions or modifications as notes near the end of their life. He described a lender who approached came to us in ‘09 had $10 million loan on an asset, and the lender had defaulted.” RockBridge said the asset was worth $6 million, the lender balked, lowered the loan, but returned in 2012, after having torched $1 million and told Merkel’s company: “We just want it off our books.” Merkel’s group still thought the asset was worth $6 million, and invested $100,000 a key into the property.

“That is a microcosm of what is still available. You have to be there when capitulation happens,” Merkel said.

Several investors on the panel said they like to invest in hotels in need of upgrades.

“Owners love not to reinvest in their hotels,” said Merkel. “That gives us the opportunity to buy hotels that need renovation. Lots of properties have fatigued owners.”  But it’s “not easy to change the trajectory of the hotel until you have capital,” Merkel said, and many owners after five or six years, balk at investing additional capital in their properties and are ready to accept a deal.

Merkel says his company prefers properties that are either in one of the top 100 markets by MSA, or are located in a specialty market, near a university, a destination, or have some government demand. 

“We are not going to go to the side of the highway and pray that motorists are going to pull off,” said Merkel. “We are in the hotel business. We are not market timers.” In fact, some of their best deals where when the hotel market bottomed in 2007.

Developers and investors like to invest with people who know the hotel industry, said Sam Plimpton, senior advisor and partner emeritus of The Baupost Group LLC, Boston, Mass. His company, with more than $27 billion of equity capital,  “can write big checks,” has interests in 12,000 rooms around the world, 10,000 in the USA, in “every grade you can imagine.” His company seeks “competent, good long-term operators who value partnership.” 

Plimpton says his group is “continuing to see opportunities,” is keeping an eye on western Europe, and most recently closed on a Marriott at LaGuardia Airport. Plimpton said his investors are “seeing deals on second, third, or fourth bounce of restructure.” He advised investors to “be in touch with a reasonably large number of deals” and to “be prepared enough to act quickly.” 

Vinay Patel, president and CEO of SREE Hotels, Charlotte, N.C., said his family-owned company invests in owner-operators, and likes to have a stake in what they buy.

“We still have investors in our back pockets if the opportunity is right,” said Patel. “We are not interested in going after a Hampton with six other people. We would rather go after an asset that needs a bump, a push.”

Patel noted a slow growth in the supply of new assets, which won’t be on the market until 2015-16, providing an “opportunity for the industry to make some money.”

Patel noted at the peak of the market, banks were chasing deals and he is “starting to get that sense coming back.” However, Patel predicted banks are “not going to be as dumb.”

Medzigian predicted that 2013 would be a “bigger year than 2012,” and thinks cap rates will come down, debt rates going to come down, and that there are not enough CMBS bonds for buyers. Lenders are a lot more conservative, and a lot of assets need capital.

Plimpton said he was concerned about interest rates, budget fiascos, health care costs, and interest rates potentially exploding in a surprising way.