Buyer’s are Back and the West is HOT

Danny Givertz of Hunter Hotel Advisors

Danny Givertz, Sr. Vice President of Hunter Hotel Advisors

Parkwest is pleased to announce that we are inviting guest writers from the commercial real estate and hospitality communities to post an article on the Parkwest GC Blog. We very happy to have Mr. Danny Givertz, Sr. VP of Hunter Hotels Advisors as our first guest writer/blogger…. Danny is an outstanding hotel broker and a good friend. We are sure you will enjoy his article and you will find it informative. If you are interested in writing an article/blog posing for us please contact Nancy Nguyen at info@parkwestgc.com.

Buyer’s are Back and the West is HOT

The simple statement of “Buyer’s are back” is only a portion of the story that’s played out since the downturn. Purchasers, while still chasing yield, are driven by both specific brand and location performance improvements. “The many varieties and requirements of Purchasers in today’s market are directly linked to the increases seen in specific segments”, said Danny Givertz, Sr. Vice President with Hunter Hotel Advisors.

The current unquenchable hunger for select-service assets should be understandable, given the recent operational improvements in the sector, yet similar hungers remain for upscale and limited-service Purchasers as those segments continue to  show strong signs of recovery as well.  Marriott, Hilton and Starwood brands are among the most desirable assets, and portfolios of like-kind properties can garner premium pricing. Conversion opportunities, including urban-infill projects and historical renovations, have also been drawn to the select-service segment, and the brands affiliated with the above franchisors.  While premium branding and improving product segments will forever be a driver of acquisitions, primary locations are not the only places offering high-yield opportunities.

The overshadowing focus on major-metro market sales may have drowned out the significant gains being realized by those willing to dig for secondary, or even tertiary gold. With younger assets, and reasonably higher cap rates, freeway and suburban locations, along with smaller cities with local demand generators, are quickly becoming the dessert to the entrees of markets like Manhattan and San Francisco.  “Consistently, we have seen firms, either fatigued by the competition and pricing for primary “super-markets” (Los Angeles, San Francisco, San Diego, Waikiki etc) or simply looking to place capital with quantity of properties in mind, rather than the cache of a single, upper-upscale or luxury hotel,” said Givertz, “The well known REITs and Lodging Companies, some of whom, gorged with their nine-digit purchases are now mingling with younger private equity in purchase negotiations creating a well of quality interest for Sellers in the secondary and tertiary locations.”

Though we have seen many signs of a recovering hospitality market, from the uptick in recent sales, to ADR, RevPAR and Occupancy growth, to stock yields, one often overlooked sector, directly related to the markets’ purchasing power has been a significant return of the 1031 Buyer. Givertz remembers a time when, “there were rarely capital gains, therefore rarely a need for the Exchange process, which can be a major motivator for Buyers and Sellers alike”. The fact that investors are willing to participate in the accelerated 1031 process seems to be a clear sign that there is confidence in the future growth of the industry, as Givertz stated, “if things look bad, you hunker down, shave expenses or deleverage as much as possible, you don’t risk major tax liabilities to position yourself in new assets, which one would do only if the future looked bright.” Rarely in our cyclical history do we find a time, like today, where values to sell and values to purchase are found palatable to the masses. The Exchange process also hinges on available inventory which has become less of an issue looking at 2013 sales-to-date and projections for the third and fourth quarters. Increases in revenues and net operating incomes are directly related to increases is purchase opportunities. So, Buyers ARE back, revenues are as well. It may not always look this bright and prosperous for our industry as a whole, so lets enjoy it while it lasts.

 

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