Colliers’ Mark Owens talks about lenders forcing more transactions over the next year, and where banks are redistributing their money in
the current capital market.
Hotel
Investment Today is writing a series featuring interviews with hospitality
experts about the current state of the hotel refinance market. Today, we
interviewed Mark Owens, vice chair and hospitality practice group leader for
Colliers. For Part 1 with JLL’s Kevin Davis, click here. For Part 2 with Peachtree Group’s Jared Schlosser, click
here. For Part 3 with Berkadia’s Michael Weinberg, click here. For Part 4 with CBRE’s Michael Straw, click here. For Part 5 with Arriba Capital’s Ryan Bosch, click here. For Part 6 with Driftwood Capital’s Carlos Rodriguez,
click here.
NATIONAL REPORT — While several high-profile hotel refinances
have occurred so far this year, one of the first half of 2024’s major characteristics is the lack of activity in the real estate acquisition market. But Mark Owens is sensing a change.
“A number of the banking institutions are now forcing
their borrowers to sell, and that is starting to happen more and more,” said
Owens, vice chair and hospitality practice group leader for Toronto-based
Colliers.
Owens said the scenario is common: Hotel assets were
purchased before COVID with a business plan to convert from one brand to
another. Money intended for renovations was diverted in the “extend and
pretend” days. Now, in mid-2024, the hotel is still with the existing brand and without the renovation. Now, lenders want their money back.
“The only way to effectuate the business plan is to sell
it or for the ownership to put more equity in, and the lenders generally don’t
necessarily want to be a part of that,” Owens said. “That’s where we’re seeing
most of that activity where the banking institutions are working with their
borrowers to try and get rid of the asset... You’d much rather have something where someone else is
going to come in and fix the hotel with the brand and continue with the
business plan but with a new capital partner.”
I think we’re at the very front end of [lender-forced sales], and we’ll continue to see that increase through the coming year.
Mark Owens
He sees that trend continuing to grow over the coming
year. “I think we’re at the very front end of that, and we’ll
continue to see that increase through the coming year, and we’ll probably
continue to see more of that into the first quarter of next year,” Owens said.
According to Owens, there are still a lot of mispriced
opportunities on the market. “One of
the things that I heard at NYU from a number of our clients is there’s nothing
new on the market, and everything is recycled,” he said.
Unless the owner needs to sell, he’s advising clients to
wait. “If you can wait and have good cash flow, why sell now?” Owens pondered.
Refinancing activity
Owens said Colliers is currently in the market with five
refinance deals. Earlier this year, it closed a high-profile, $185 million
refinance with Honolulu-based Trinity Investments and New York City-based
Certares Management for the 352-key East Miami Hotel in Florida.
Earlier this year, Colliers closed the $185 million refinance East Miami Hotel in Florida.
He said most refinances he is working on now have come to bear because the lender doesn’t want to continue holding the loan. “There are a number of the balance-sheet lenders that are
saying we do not want to keep holding long-term assets that we’ve had on the
books,” Owens said. “They may have already extended it two or three times and
are at the end of their desired hold period. We are seeing a pretty substantial
uptick in that position.”
According to Owens, the banking market is still active in
the hospitality lending space, but it’s putting its money in different places,
like debt funds or other alternative vehicles, to get better capital treatment.
“When people say the banking market is not active, that’s
not exactly correct,” he said. “The banks are just deploying their capital
differently, which is why you’re seeing so much liquidity… The debt funds have
gotten much less expensive than they used to be, and that’s because they now
have back leverage from the banking systems.”
Interestingly, Colliers still sees strong banking
interest for its international balance-sheet loan clients.
More transactions
Owens said structured finance constantly evolves and will
find the niches in the hospitality debt market. “There
are well-capitalized global funds that realize the mid-market space, that
$30-$70 million space, is pretty inefficient, and there’s not a lot of debt
funds or floating-rate options in that market. We’re seeing several
institutions move into that space, which is good for us because it means
there’s more availability of capital.”
There are well-capitalized global funds that realize the mid-market space, that $30-$70 million space, is pretty inefficient, and there’s not a lot of debt funds or floating-rate options in that market.
Mark Owens
Owens said he expects to see more acquisitions because of
lender-forced transactions or other reasons. “Just
because we’ve had so few transactions out there for outright sale, I would
expect an uptick. But it’s anyone’s guess at this stage… I expect the bank
market to continue to ramp up its disposition activity, which would result in
more acquisitions,” he said.
While interest rates don’t look to be lowering any time
soon, Owens said there is some spread compression in the market.
“When we see massive, substantial spread
compression and rates suddenly drop dramatically, I think we’ll see an equal
uptick in transaction volume on the sales side. But, for now, it will be a lot of refinancings, a lot of extending of loans, and a lot of short sales or lender-forced
sales activity.”