Powerhouse companies join forces to identify and purchase hotel properties in Permian Basin

Dallas-based Prism Hotels and Resorts announced they have partnered with Louisville, Colorado-based Real Capital Solutions in a $200 million investment fund initiative where Real Capital Solutions is poised to purchase hotels located in the Permian Basin in Texas, as well as other oil & gas demand-driven markets. Marcel Arsenault, Chairman and CEO of Real Capital Solutions and Prism Hotels and Resorts’ President and CEO Steve Van jointly made the announcement.

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GlobeSt.com: Where do you see the hotel business headed in the latter part of 2016?

Steve Van: To be honest, it depends on where you are sitting on the hotel cycle rollercoaster. The short industry-wide answer is that the coaster is headed down, down, down. But there are market-to-market differences depending on where you are “sitting” on that coaster. For those sitting on the back row of the coaster in San Francisco, for example, things are actually still going up, with a 10.7% RevPAR increase so far this year. If you are on the front row of the coaster in New York City or Houston, however, you’ve already crested the first hill and are on the way down, with a respective 3.9% and 7.0% decline in RevPAR so far this year.

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Prism to Manage Hyatt Regency Los Angeles International Airport
06 Jun 2016

Prism Hotels and Resorts announced today that they have been engaged to manage the largest Hyatt Regency franchise in North America, the soon-to-be 581-room Hyatt Regency Los Angeles International Airport. Prism Hotels and Resorts’ President and CEO Steve Van made the announcement.
“Hyatt Corporation is highly selective in entrusting management companies to operate their Hyatt Regency brand and their approval of Prism puts us in a very small elite group of third-party full-service managers,” Van said.

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Here’s my hotel industry takeaway from Jim Butler’s great Meet the Money conference last week in beautiful LA.

  1. There is only one consensus about the future of our hotel industry among owners, lenders, franchisors, brokers, appraisers and attorneys…
  2. The consensus is that there is no consensus.
  3. The forecasters say the rest of this year and next year will have continued positive RevPAR growth of 4-5%, but at the same time everyone is concerned about overbuilding which is moving UP and occupancy trending DOWNWARD.
  4. All the brokers say now is a great time to sell (no surprises here!), but first quarter sales of hotels are down 52%.
  5. All the lenders say they have plenty of money for hotel loans, but loan originations, especially in CMBS – are plunging.
  6. Most investors and operators look for continued NOI growth but everyone is concerned about a possible downturn and increasing expenses.
  7. Everyone agrees that hotel revenue closely tracks GDP and hotel cap rates closely track ten year treasuries.
  8. Everyone agrees that no economist can predict GDP and ten year treasuries.

So my final takeaway is that none of us knows what the future holds, but we all love to talk about it….and if you want to make your own predictions, see all the conference presentations here and follow Jim Butler’s Hotel Law Blog here.

Today’s update on the current hotel cycle… we are not in a baseball game folks… (and aren’t you sick of the which-inning-are-we-in question?). A far better analogy is a big tall roller coaster. Sitting in the front car… click click click … you can feel it slowing as we near the top… right before the big drop. Some facts on our upcoming plunge…

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Billions in ten-year hotel loans originated in 2006 and 2007 are coming due… and they will need replacement loans to keep from defaulting. So what is that looking like?

Remember the pre-politically correct Cowboy and Indian movies? Right at the last, as the Indians are about to overrun the fort and slaughter the depleted soldiers… on the horizon appears the US Cavalry! Well this movie today is a lot more like Custer’s Last Stand.

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For all you winged road warriors, remember the last time you waited and waited on the tarmac for the weather to clear enough for takeoff? Well after years of painful idling, ADR is taking off at LAX. And it will be the best growth market in the US for the next few years. How about an ADR increase 160% MORE than the US average in 2015?

Compare this: US ADR grew 4.7% in 2015 and will grow 5.5% in 2016. But beautiful LAX grew 12.2% last year and will grow 10.4% this year.

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Question:

What do you call the area of the United States larger than the State of Texas which will produce more hotel defaults this year than all the rest of the country combined? Shale Hell – it’s fast becoming a Dead Zone for hotel performance. If you service a hotel loan in any of these areas, get ready to be busy this year. And be prepared to act differently than you did the last few downturns because in these fracking-dependent areas there is little hope for a recovery any time soon.

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Other than The Meaning of Life, the question we existential hoteliers most often ask is, “When will the distressed hotel deal floodgate open?”

Here’s the answer.  A camel has a seven step digestive sequence just like our current distressed hotel process.  First a loan is originated. ($Billions in ’06 and ’07 and for the camel analogy big fat juicy ones- the camel will eat anything).  Second as they default extend and pretend sends them back as modified.  Third, the owner  loses any remaining equity.  Fourth the loan defaults again and the mezzanine seeks extend and pretend to save its equity. (Camels regurgitate their food twice).  Then the mezzanine holder loses its capital.  And somewhere in this slow process the franchisor hits the hotel with a big PIP stomach ache.  We are getting close to the camel’s you know what here.  Finally the first lien holder or the special servicer forecloses and then probably in 2013 and 2014 the event we have all been waiting for happens and the distressed hotel floodgate opens and we can all go on an acquisition frenzy.

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Steve Van participated at the Meet the Money 2012 conference as a moderator on the panel “Creating and Preserving Asset Value – The PIP Challenge and Beyond”. He was quoted in a recent Wall Street Journal blog summarizing the discussion below.

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