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HMBA's Regional Market Round-up Yields Insights
By Jeff Wilder
For H&MM's March 1, 1999 issue

My favorite annual conference seat is usually at the annual Regional Marketplace Round-up of the HMBA: America's Hotel Broker, and this year's session was certainly no exception. The wrap-ups feature HMBA brokers from around the USA who discuss what's going on in their areas. It often sparks conversation among the rest of the broker attendees and gives everyone a better insight into what's happening "on the ground floor." This year's speakers were Bruce Holmes of Oklahoma, Chuck Nester of California, Tom Fox of New Jersey, Tony George of Florida and Ron McCord of Wisconsin. Brandt Niehaus of Huff Niehaus in southern Indiana was the moderator. Their comments usually accurately reflect regional market trends.

Some of the questions these folks were asked to discuss include: Who are the buyers and sellers today? What's happening in the new construction area? Who's doing the financing?

Bruce Holmes, whose company is in Oklahoma City, started off the session by observing that while the REITs were leaving the market as buyers, they were coming back as sellers. And, that more individual entrepreneurs were in the market to buy, though on a selective basis. Many of the deals he sees are in the 3 to 5 Million Dollar range. He said that his local market saw 28 new hotel projects in 1998, with 16 under construction (or completed) and 12 that had received building permits. Bruce felt that this was a metaphor for the situation in many southwest cities. While buyers were looking for full service hotels, the new construction was generally of the extended stay or limited service type. He finds more seller financing deals as traditional lending sources back away from the hotel market or provide lending offers that just don't help get deals done. Bruce also mentioned that foreclosures were definitely on the upswing in his region.

Chuck Nester, of Westlake Village in the Los Angeles area, oversees the Brown Hotel Group. His office is experiencing a multitude of buyers, with REITs still looking for West Coast sites though few top locations remain available. According to Chuck, sellers often list their hotels at 4-6 times gross room sales multiples, and buyers better be looking north of 3 times room sales, and 8 to 10 cap rates, if they're to have a chance at being the successful purchaser. He also observes that new construction extended stay product is often being built in the wrong areas. Many are developed near more residential areas, yet act more like regular transient hotels after 60 to 90 days of foraging for that "niche" weekly and monthly market.

Tom Fox of TJ Fox and Associates in Atlantic City New Jersey sees a variety of sellers in today's market. These include lots of people wanting to get out at the top, REITs, those who don't wish to do expensive upgrades, and hoteliers with competition coming into their markets. Tom is finding that the markets he covers can be characterized as having stable occupancies with increasing ADRs. He finds the Mid-Atlantic lodging industry to be generally healthy with modest selling price slippage and relatively less new construction than is going on in the rest of the country.

Down in Florida, Tony DeGeorge of Clearwater's Greene Canfield DeGeorge Ltd. sees sellers to be those people with hotels that are not in good shape, people who believe that the height of the market is here, or hoteliers who want to move up to the next level. He sees very little building, except (naturally) in the Orlando area.

Ron McCord of Milmark Hotel Investments in Brookfield Wisconsin sees sellers in his northern Midwest area as those who are often simply burned out, getting divorced, or are regional chains/operators wanting to re-position themselves. The repositioning often means liquifying 40/50 unit motels and using the capital to buy larger properties in different locations. Ron finds buyers looking at 12 to 14 cap deals and 2 times gross room sales, with a big demand for the 50+ unit franchised properties.

As to the question of 1999's market activity levels, Tom Fox saw an increase in sales and didn't foresee a buyer's market, per se. Chuck Nester expected a very good year with increased selling by multiple property family owners and more inventory at realistic prices. Ron McCord saw more sellers motivated by declining sales and increased expenses. The last question of the session saw Brandt Niehaus asking the group where they would invest $ 10M if they were asked to make a hotel investment. Fox said he'd buy Hilton stock or invest in a 4 Star Resort in a high barrier to entry market; DeGeorge puts his money into a full service convention style Orlando hotel; Nester goes with a suite product sans F&B (or leased out); and Ron McCord says, without hesitation, that he'd build a 120 unit all suite hotel in Madison, Wisconsin. Readers, dust off your airline tickets. Madison, here they come!