LARKSPUR HOSPITALITY COMPANY CHAIRMAN FINDS HOTEL VALUES REMAINING HIGH EVEN IN CURRENT ENVIRONMENT: Expertise in the hotel category or market seen as key to successful acquisitions or management agreements
The current operating environment means challenging days and dismal results for many hotels, but Larkspur Hospitality Company's Chairman and CEO Karl Hoagland, who is looking to acquire hotels, sees no movement downward on current hotels values. Hoagland spoke about the current buy/sell environmen t during at The Americas Lodging Investment Summit in Los Angeles on February 4.
I think hotel values are remaining stubbornly high relative to the terrible operating environment and as a result we have not yet seen many transactions, said Hoagland. Sellers are sanguine and have fond memories of the 2000 operating environment, while opportunistic buyers are looking for fire sales.
Hotel industry operating revenue per available room was down 16% in the fourth quarter of 2001, and more than double that level in many West Coast hotel markets. January has not seen substantial improvement so far either.
Everyone knows there will be a recovery at some point, and that seems to be the sole focus of investors and industry participants, said Hoagland. Even though the dip is severe and will be protracted, several opportunistic pools of capital have been raised to buy hotels. I field phone calls from people I think are going to say they are throwing in the towel, but they are calling to ask me for hotel acquisition leads.
The difference between now and the early 90's is sentiment, said Hoagland. It's not going to be as easy for opportunists to buy hotels from the trash heap, hang on to them for a few years and then flip for much higher prices. This is even more the case in the western states where memories of the ebullient times of 2000 are still fresh – and where development is extremely difficult and expensive. So unless there is another severe downturn – other than distressed hotel owners facing capital maturities
– we don't see hotel values dropping to levels commensurate with risks and low cash flow levels.
What this means is that successful buyers will need to be strategic instead of merely opportunistic. They will need to have expertise in the asset class or specific sub-market in which hotels are located to attain marketing and operating efficiencies, said Hoagland. It will be important to be able to improve the results of the hotel post-acquisition via active and value-added management. What this means for LHC is that we are looking to acquire or manage hotels that have a strategic fit with our current portfolio and management capabilities. We expect to have some deals wrapped up in the first half of 2002.