Why he thinks bankers will force more takeovers this year

Hotel Investment Today is writing a series of interviews with experts from the hotel and catering industry about the current situation on the hotel refinancing market. Today we interviewed Mark Owens, Vice President and Hospitality Practice Group Leader at Colliers. To watch Part 1 with JLL’s Kevin Davis, click here. To watch Part 2 with Jared Schlosser of Peachtree Group, click here. To see Part 3 with Berkadia’s Michael Weinberg, click here. To watch Part 4 with CBRE’s Michael Straw, click here. To read Part 5 with Ryan Bosch of Arriba Capital, click here. To watch Part 6 with Carlos Rodriguez of Driftwood Capital, click here.

NATIONAL REPORT — While there have already been several high-profile hotel refinancings this year, one of the main characteristics of the first half of 2024 is the lack of activity in the real estate acquisition market. But Mark Owens senses a change.

“Many banking institutions are now forcing their borrowers to sell, which is starting to happen more and more often,” said Owens, vice president and group leader of the hospitality practice at Toronto-based Colliers.

Owens said the scenario is common: The hotel assets were purchased pre-pandemic with a business plan to convert from one brand to another. Money intended for renovations was squandered in the era of “extension and pretense.” Now, in mid-2024, the hotel continues to operate under its current brand and without renovation. Now the lenders want their money back.

“The only way to execute a business plan is for the owner to sell it or put in more capital, and lenders generally don’t necessarily want to be involved in that,” Owens said. “That’s where we see most of this activity, where banking institutions are working with their borrowers to try to get rid of assets… You’d prefer something where someone else comes in and fixes up the branded hotel and continues the business plan, but with a new capital partner.”

He believes this trend will continue to grow in the coming year. “I think we’re at the very beginning of this period and we’ll continue to see this growth in the coming year, and we’ll probably continue to see it in the first quarter of next year,” Owens said.

According to Owens, there are still many mispriced opportunities in the market. ““One of the things I’ve heard at NYU from many of our customers is that there’s nothing new on the market and everything is recycled,” he said.

If the owner doesn’t have to sell, he advises customers to wait. “If you can wait and have good cash flow, why sell now?” Owens became thoughtful.

Refinancing activities

Owens said Colliers is currently in the market with five refinance transactions. Earlier this year, it completed a high-profile $185 million refinancing deal with Honolulu-based Trinity Investments and New York-based Certares Management for the 352-key East Miami hotel in Florida.

He said most of the refinances he’s currently working on have gone through because the lender doesn’t want to continue keeping the loan. “A lot of the balance sheet lenders are saying we don’t want to continue to hold the long-term assets that we had on the books,” Owens said. “They may have already extended it two or three times and are nearing the end of their desired suspension period. We see quite significant growth in this position.”

According to Owens, the banking market is still active in the hospitality industry, but is putting its money elsewhere, such as debt funds or other alternative vehicles, to ensure better treatment of capital. “When people say that the banking market is not active, this is not entirely true,” he said. “Banks are just allocating their capital differently, and that’s why you see so much liquidity… Debt funds have become much cheaper than they used to be, and that’s because they now have feedback leverage from banking systems.”

Interestingly, Colliers continues to see strong interest from banks in its international balance sheet lending clients.

More transactions

Owens said structured finance is constantly evolving and will find niches in the hospitality debt market. “There are well-capitalized global funds that realize that the $30-70 million middle market space is quite inefficient, and there aren’t many debt funds or floating rate options in that market. We see several institutions entering this space, which is good for us because it means greater availability of capital.”

Owens said he expects more foreclosures due to lender-forced transactions or other reasons. “Just because we had so little direct sales, I would expect an increase. But at this stage one can only guess… I expect the banking market to continue to increase divestment activity, which will result in more acquisitions,” he said.

While it doesn’t look like interest rates will be cut anytime soon, Owens said there is some spread compression in the market.

“When we see a huge, significant compression in spreads and suddenly a drastic drop in rates, I think we will see an equal increase in trade volume on the sell side. But for now, it will be a lot of refinancing, a lot of loan extensions, and a lot of short sales or lender forced sales.