We love all asset classes and each one seems to have its moment in the sun. Right now apartments are getting quite a suntan but the somewhat surprising addition to the beach club is hotels. In retrospect those few brave souls that purchased temporarily distressed / over leveraged, hotel trophy assets at little or no cash on cash return but for less than replacement cost (in that short window that existed for those transactions) have made out like bandits. You had to have your own internal capital or have a brave and out of box thinking, long term, existing capital relationship to do those deals; as most everyone else was waiting for a bounce from the floor before considering deals. I think there is a second bite at the hotel apple now and much more debt and equity for hotel deals that are still very compelling but maybe not trophy assets. Branding is still very important but a very good non-branded deal with a good story, solid economics, and strong sponsorship is do-able with a cap stack and cost of capital that makes sense.
We currently are working on an A-/B++, mid-branded hotel in a stronger secondary market that is being purchased at a good going-in return based on trailing twelve months and has a very clear upside from executing a modest and simple business plan. The prospective bridge debt is a higher leveraged instrument and well priced in the not-so-high single digits (and immediately accretive to cash on cash return). The equity we are speaking with understands the market and the story of the property. Based on improving fundamentals and a major restoration of investor and lender confidence, well priced permanent loans for hotels are no longer the "Impossible Dream" and rather are readily available, generally at or less than 60%-65% LTV with mezz available to go higher in the capital stack.
Getting back to the bright uplands of apartments (that can do no wrong) we have been quoted recently a very well priced 30-year amortization deal (fixed for a term you can pick from 3 to 10 years) for a neat, bread and butter, smaller building, older apartment property portfolio in a major market even though the borrower had been repeatedly ignored / turned down due to credit issues related to his recently taking some lumps on some assets he BK'd but eventually paid off in full. In this case, the quality of the real estate and most importantly the willingness of the lender to really get into the story, which we laboriously explained and documented, did the trick.
We have established many new relationships and closed deals in the last twelve months with folks that call us because they received this blast and present a deal or prospective deal to us. Please give us a call, we love hearing from you and the people you are welcome to pass this blast on to. Our website now allows anyone to sign up for this blast that is not already on our list!