Jones Lang LaSalle Hotels has issued its debt capital markets update:
At the end of 2009, we faced continued declines in operating performance, a distinct lack of availability of both debt and equity capital, and tremendous uncertainty regarding lenders’ actions on troubled loans. As we wrap up 2010 and begin to turn the corner into 2011, we have much greater clarity on these concerns, and the outlook is generally positive. The question now is: will the recent trends continue through 2011?
The driving engine behind the recovery of the hotel capital markets has been operating performance. Eighteen months of cost reductions has resulted in hotel operating margins so efficient that even a mild uptick in occupancy and rate can lead to significant bottom line revenues. As hotel owners and management teams have been able to halt the bleeding and begin to once again grow both occupancy and rate, equity and debt sources have actively sought to catch the market on its upswing.
Debt Markets Responding Favorably
The debt capital markets have favorably responded to the stabilized hotel operating environment, and moved quickly from simply sniffing around at the beginning of 2010 to taking giant bites at the end of the year. The continued low interest rate environment has encouraged lending at spreads attractive to the lender while maintaining an overall interest rate appealing to the borrower. These market dynamics have opened the playing field of lenders, and over the course of 2010 Jones Lang LaSalle Hotels secured financing from a growing pool of specialty finance groups, insurance companies, Wall Street securitized lenders and domestic banks.
Uptick in Loan Sales and Foreclosures
Simultaneous to the re-emergence of hotel debt and increase in value data points, lenders and servicers have also begun to take action on their portfolios of troubled loans. We have seen a notable increase in our portfolio analysis and strategic decisions advisory business for lenders, and this is directly related to the uptick in loan sales and foreclosures. Lenders are currently evaluating whether it behooves them to sell the note on a hotel, foreclose and sell the asset, or restructure with the borrower. A litany of factors govern this decision making process, and consequently while lenders have increasingly taken action on troubled loans, there remains a significant degree of uncertainty on what the prevailing course of action will be in 2011.
