THE VOLATILITY IN CMBS MAKE THIS FORM OF FINANCING MUCH LESS ACCRETIVE AND RELIABLE , WHICH IS SIGNIFICANT BECAUSE CMBS FREQUENTLY FINANCES HOTEL M & A TRANSACTIONS AND LARGE TRADES .
– KEVIN DAVIS , JLL
are near post-COVID wides . The volatility in CMBS make this form of financing much less accretive and reliable , which is significant because CMBS frequently finances hotel M & A transactions and large trades . BRANDON TARPEY , M DEVELOPMENT : I believe we ’ ll see an increase of transactions falling out of contract due to unexpected negative leverage . This will create an environment of hotel ’ s being offered at discount to back-up buyers . It will slow the overall pace of deal flow . However , there are plenty of buyer ’ s who will transact at a realistic price .
FLIP MARITZ , BROADREACH CAPITAL PARTNERS AND MARITZ , WOLFF & CO .: I see a material impact , particularly due to credit availability , much less higher rates . But great assets usually find a buyer and great buyers usually find a way . JOHN FAREED , HORWATH HTL : Even since the interest rate hike , we ’ ve been tapped by two large hotel companies to assist them with developing a list of strategic targets for acquisition which are aligned with their company ’ s values , philosophy and overall goals — whether that ’ s to grow total number of keys , number of properties in the pipeline or even to counter act the scarcity of labor . CARLOS RODRIGUEZ SR ., DRIFTWOOD CAPITAL : It ’ s definitely going to slow down M & A deals . Some deals will still be made but it will be more difficult to make the numbers work . C . PATRICK SCHOLES , TRUIST SECURITIES : It has been difficult for the public REITS [ in the U . S .] to compete with private equity due to the higher leverage levels private equity firms are able to take on for an acquisition . Subsequently , opportunities for development within existing owned hotels were highlighted over opportunities to go on acquisition sprees . Additionally , hotel REIT management teams we spoke with last month [ in June ] at the NAREIT conference noted a bit of a ‘ pause ’ at that moment in the transaction environment due to reluctance by owners to sell when their revenue forecasts keep improving combined with the cost of debt ratcheting-up for potential buyers .
While buyer-seller dialogue remains very active and capital remains fairly plentiful , the biggest change this year is lending rates . With lending rates going from 4.5 % nine months ago to 7 % today , for example , investors are factoring in more growth to their underwriting to pencil-out acquisitions . Debt markets were a little more challenging than three months ago [ April ] and the importance of getting the labor assumptions correctly modeled . Other points : some underwriting assumes negative cash flows going in ; debt markets are expected to come back more perhaps by the fall ; with the exception of Watermark ’ s non-listed REIT being sold to Brookfield ( BAM , Not Rated ), there remains relatively few comps of note within urban fullservice ( even excluding the Watermark resort assets ). That activity may improve later this year given the attendee base and activity present around the main halls of the conference .
Buyers of urban full-service hotels
SOME WILL ; MANY WON ’ T . THE BEST WAY TO JUSTIFY HIGH MULTIPLES IS THAT OLD CANARD ABOUT REPLACEMENT COSTS , WHICH ARE CURRENTLY EXCEPTIONALLY HIGH .
– FLIP MARITZ , BROADREACH CAPITAL PARTNERS , ON BUYER ’ S ABILITY TO AVOID PEAK MULTIPLES
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