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Daniel H. Lesser
Senior Managing Director Industry Leader
Hospitality & Gaming Group
CB Richard Ellis, Inc.
One Penn Plaza, Suite 1835
New York, NY 10119
Phone: 212.207.6064
Fax: 212.207.6069
Email: [email protected]
The U.S. Hotel InvestmentMarket: The Glass Is Half Full
Presented to:
JMBMs 18th Annual
Meet the Money Conference
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CB Richard Ellis | Page 2
Investment Overview of the U.S. Lodging IndustryEconomic Overview
Much talk about the Big R
Consumer Confidence
GDP Growth
Home Sales
Conflicting opinions on Main Street & WallStreet Bear Stearns debacle near failure to $2 per share, then
back to $10 per share (400% weekly change)
Volatile stock markets
Profits still being generated at household name firms
General Electric, Lehman, JP Morgan, Goldman Sachs,Viacom
Some industry experts predict business will pick up after2008; others predict 2010
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CB Richard Ellis | Page 3
Statistics Are What They Are . Or Are They?
Economy Commodities (gold, wheat, oil) at all time highs
Hotel Operations RevPAR still showing year over year growth2008 increases are over 2007 records
Supply & Demand As of Q2 2008, Lodging Econometricsreported a record 760,000 rooms in the pipeline2.5% net supply growth in 2007
3.0% net supply growth forecasted for 2008
FinanceWidening spreads, higher DCRs, lower LTV & LTCs
Non-existent CMBS market,
Lower volume of transactions
Decline in overall value of transactions;
Virtual halt to M&A and portfolio deals for now
So, What does this really mean?
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CB Richard Ellis | Page 4
Buy or Sell? Just Ask the Smart Money
Savvy and sophisticated long term investors believe NOWis a buying opportunity
Value Decline or Perception Decline?
Crisis localized in the Debt Capital Markets
Plenty of Available Equity evidenced by available funds: KSL - $1.6 billion equity fund
Kimpton - closed $246 million fund w/buying power of $800 million
RLJ - the RLJ Real Estate Fund III, L.P. - $1.2 Billion
Rockbridge Rockbridge Hospitality Fund IV with $160 million possible total to exceed $200 million
Blackstone closes with $10.9B in Q2 2008
Jon Gray, We believe there should be attractive investmentopportunities for this capital given the market dislocation thatexists today.
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CB Richard Ellis | Page 5
Historic Perspective ADR/RevPAR Change
Supply Demand Occupancy ADR RevPAR CPI Differential: Differential:
% % % % % % ADR vs RevPAR vs
Change Change Change Change Change Change CPI CPI1978 1.4% 4.1% 2.9% 14.0% 17.0% 7.6% 6.40% 10.60%1979 1.4 5.3 3.8 17.0 21.5 11.3 5.7 15.91980 0.8 -1.0 -1.8 15.2 13.2 13.5 1.7 11.51981 1.5 -2.4 -3.9 10 5.8 10.3 -0.3 6.11982 0.7 -1.2 -1.9 6.1 4.1 6.2 -0.1 4.21983 1.2 -2.1 -0.9 5.2 1.7 3.2 1.9 -0.21984 1.5 0.9 -0.6 6.9 6.3 4.3 2.6 3.7
1985 2.8 1.3 -1.5 4.6 3.1 3.6 1.1 2.0
1986 3.3 2.3 -1.0 3.2 2.2 1.9 1.4 0.8
1987 3.8 4.1 0.7 4.1 4.8 3.6 0.4 4.4
1988 4.2 4.2 0.3 3.5 3.8 4.1 -0.6 4.51989 3.6 4.9 1.4 3.4 4.9 4.8 -1.4 6.31990 3.2 1.9 -1.5 3.2 1.7 5.4 -2.2 3.91991 1.5 -1.2 -2.8 0.0 -2.7 4.2 -4.2 1.51992 0.8 2.1 1.3 0.6 2.8 3.0 -2.4 5.31993 0.4 1.9 1.6 2.7 4.3 3.0 -0.3 4.51994 1.2 3.1 1.7 3.9 5.9 2.6 1.4 4.51995 1.5 2.1 0.6 4.8 5.4 2.8 2.0 3.41996 2.4 2.3 -0.3 6.5 6.3 3.0 3.6 2.71997 3.6 2.8 -0.8 5.9 5.1 2.3 3.6 1.41998 4.2 3.1 -0.9 4.6 3.6 1.6 3.1 0.51999 4.1 3.0 -1.1 4.0 2.9 2.2 1.8 1.22000 3.1 3.7 0.6 4.9 5.5 3.4 1.5 4.02001 2.4 -3.4 -5.7 -1.3 -6.9 2.8 -4.1 -2.82002 1.6 0.3 -1.2 -1.4 -2.6 1.6 -3.0 0.42003 1.2 1.7 0.5 0.1 0.6 2.3 -2.1 2.72004 0.9 4.5 3.5 4.0 7.8 2.7 1.3 6.52005 0.3 3.3 2.9 5.4 8.5 3.4 2.0 6.52006 0.3 0.7 0.5 7.2 7.7 3.2 4.0 3.72007 1.4 1.2 -0.2 5.9 5.7 2.8 3.1 2.6
Year
Source: Smith Travel Research; Bureau of Labor Statistics
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CB Richard Ellis | Page 6
Beware of Self-Fulfilling Prophecy!
Maintain rate integrity
International travelers see the U.S. on sale
Still growth, not declines over record year performances
Dont fret just because the system is back to basics,does not indicate a negative situation: Spreads are 250+ BPS over 10-year Treasury
1.3 or better DSCR
75% or better LTV or LTC
25-year or less AM
A correction is good
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Why This Downturn Will Not Last Long
DB GDP Forecast- 0.5% - 0.3% 2.6% 0.9%
DB Demand Forecast0.0% - 0.4% - 1.2% - 0.7%
DB Supply Forecast 2.0% 2.1% 2.2% 2.0%
DB Occupancy Forecast- 2.0% - 2.5% - 3.4% - 2.7%
DB ADR Forecast 4.7% 4.9% 3.8% 4.0%
DB RevPAR Forecast2.7% 2.4% 0.4% 1.3%
4 08E1 08E 2 08E 3 08E
Source: Deutsche Bank
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Supply & Demand Growth
-3
-2
-1
0
1
2
3
4
5
1988
Sup
ply
1989
Sup
ply
1990
Sup
ply
1991
Dem
and
1998
Sup
ply
1999
Sup
ply
2000
Sup
ply
2001
Dem
and
2005
Sup
ply
2006
Sup
ply
2007
Sup
ply
2008
Dem
and
Supply growth three years prior to negative demand growth years
Source: Smith Travel Research; Deutsche Bank
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U.S. Hotel Transaction Market v. Rest of the World
Average Sale Price Per Room: 2007 Single
Asset Sale Transactions
United Kingdom *350,856 EURO (Roughly $554,353)
France *228,064 EURO (Roughly $360,342)
USA **$220,718
*Euro = 1.58 USD
*Source: HVS London Office
**Source: CBRE Hotels
http://rds.yahoo.com/_ylt=A0oGkiaWJBpILAYBlBJXNyoA;_ylu=X3oDMTBzdXR0NmJjBHNlYwNzYwRjb2xvA3NrMQR2dGlkA0Y4MjRfNzM-/SIG=1e7r8e0bc/EXP=1209759254/**http%3a//images.search.yahoo.com/images/view%3fback=http%253A%252F%252Fsearch.yahoo.com%252Fsearch%253Fei%253DUTF-8%2526p%253DDollar%252Bsighn%26w=125%26h=113%26imgurl=www.comnetsupport.com%252Fimages2%252FDollar_Sign.jpg%26size=3.6%26name=Dollar_Sign.jpg%26rcurl=http%253A%252F%252Fwww.comnetsupport.com%252Fc_home.html%26rurl=http%253A%252F%252Fwww.comnetsupport.com%252Fc_home.html%26p=dollar%2bsign%26type=jpeg%26no=1%26tt=20%252C3958/14/2019 Hospitality Lawyer on State of the Hotel Industry - Dan Lesser at JMBM's Meet the Money 2008
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WEAKNESSESWEAKNESSES STRENGTHSSTRENGTHS
Todays Market: Weaknesses v. Strengths
k b i l i
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Weakness: Subprime Malaise
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Weakness: Foreclosures
Nearly six times more foreclosures in 2007than 2006
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Weakness: Economists Dire Predictions
S h D b S ill I i
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Strengths: Debt Still Inexpensive
10 Year
Treasury3.749%
Prime Rate 5.0%
30 Year Fixed
Rate Residential
Mortgage
5.72%
As of May 1, 2008
St th F i C
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Strengths: Foreign Currency
0.00
0.50
1.00
1.50
2.00
2.50
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
EUR GBP CAD
$US
R C t W k St th
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STRENGTHSSTRENGTHSWEAKNESSESWEAKNESSES
4. Dire Predictions4. Dire Predictions
3. Supply Increases3. Supply Increases
2. Home Foreclosures2. Home Foreclosures
1. Subprime Malaise1. Subprime Malaise
4. Foreign Currency4. Foreign Currency
3. Intl Tourism3. Intl Tourism
2. RevPAR Growth2. RevPAR Growth
1. Inexpensive Debt1. Inexpensive Debt
Recap: Current Weaknesses v. Strengths
h i ll k il
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or
A Choice We All Make Daily:
Wh H W B
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Now lets look at someeconomic history
Where Have We Been
1981 I t t R t
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1981 - Interest Rates
Prime Rate
July, 1981 20.5%
SOURCE: Wall Street Journal
1986 T R f A t
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1986 Tax Reform Act
1991 G lf W D t St
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CB Richard Ellis | Page 23
1991 Gulf War Desert Storm
Dow Jones Industrial Average
April 17, 1991 3,004
May 1, 2008 13,010
1989 Resolution Trust Corporation (RTC)
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CB Richard Ellis | Page 24
1989 Resolution Trust Corporation (RTC)
ForecastForecast
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CB Richard Ellis | Page 25
ForecastForecast
In recent past small increments ofwealth were transferred to a largenumber of people.
In the near term large increments ofwealth will be created by a smallnumber of people who have faith.
ForecastForecast
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CB Richard Ellis | Page 26
ForecastForecast
Change is Inevitable
Struggle is Optional
Stop struggling
2008 Is A Terrific TimeTo Buy U.S. Lodging
Assets!
What Should One Do If
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CB Richard Ellis | Page 27
What Should One Do If
I want to buy a property?
Look over the menu.
Hire professionals with the best information.
Dont be shy. Intercept the bottom.
Be creative. Every part of a cycle offers valueenhancement opportunities.
What Should One Do If
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CB Richard Ellis | Page 28
What Should One Do If
I need to refinance my property?
With interest rates as low as they are, itswrong not to borrow, if you can.
Be creative.
Seller financing
1031 Exchange
Club Deals
Quote Worth Considering
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CB Richard Ellis | Page 29
You cannot change the
direction of the wind, butyou can adjust yoursails. - Jonathan Swift
Quote Worth Considering
Closing Thoughts
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CB Richard Ellis | Page 30
Closing Thoughts
During the past several years, the U.S. hotel industryhas experienced record revenues and profits. Worstcase scenario, if either or both decline in the near
future, it will be experienced off of all time highs; theindustry has been and will continue to be profitable. Incontrast, during the early 1990's the US hotel industrywas losing millions of dollars a year
Foreign capital, led by sovereign wealth funds is eagerlyscouring the U.S. landscape for deal opportunities. TheU.S. has and will continue to represent the safest andmost stable place on the planet to invest in. On a perpound basis, U.S. hotel real estate prices are relativelyinexpensive and well positioned to provide superior riskadjusted returns when compared with other worldwideinvestment opportunities
Healthy growth in emerging market economies has beenand will continue to be fueled by overseas demand forAmerican goods, products, services, and technology,which in part will be a main engine of a growing U.S.economy. Long term U.S. GDP growth bodes well forthe hotel industry
Th U S H t l I t t
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Daniel H. Lesser
Senior Managing Director Industry Leader
Hospitality & Gaming Group
CB Richard Ellis, Inc.
One Penn Plaza, Suite 1835
New York, NY 10119
Phone: 212.207.6064
Fax: 212.207.6069
Email: [email protected]
The U.S. Hotel InvestmentMarket: The Glass Is Half Full
Presented to:
JMBMs 18th Annual
Meet the Money
Conference
http://upload.wikimedia.org/wikipedia/commons/1/11/Glass-of-water.jpg