What we mostly hear these days are that debt and equity\r\nproviders are still very much interested in the hotel business, but are pulling\r\nback on their hotel investments. The cost of debt capital is going up as the\r\nFed continues to raise rates, and Loan-to-Values are going down as Lenders get\r\nmore cautious in the face of new supply and slowing Revpar growth across the\r\ncountry. Private Equity Investors are also looking to take on less risk and\r\ntrading upside for downside protection, with many looking to evolve from being\r\nLP investors to being Pref Equity Investors, mostly topping off around 85\r\npercent in the Capital Stack. \r\n\r\n\r\n\r\nSo, what’s a Developer or Sponsor to do? Well believe it or\r\nnot there is a ton of capital out there looking for a home in the hotel sector.\r\nOn the debt-side we have the three buckets of need, cash flowing assets, those\r\nin transition, essentially “story deals”, and new construction. Finding\r\nrefinance or acquisition financing for cash flowing assets is obviously the\r\neasier path, although given how hard Lenders are looking at loan placements\r\nthese days, the project still has to make sense, have a strong Sponsor. Management\r\nexpertise that is suited to the asset, brand and market is also becoming more\r\nof a focus. Capital for these debt placements may be from CMBS, Life Co.,\r\nBalance Sheet and Debt Fund Lenders. We are finding that debt capital for\r\n“story deals” is largely about many of the same factors, but with added attention\r\nto per key cost basis, new supply impact, brand, and how that asset plans to\r\npenetrate its comp set. For these types of deals we are mostly finding capital\r\nfrom Debt Funds providing Bridge Loans. On ground up construction these days\r\nthe LTC is sliding back to 50 to 60 percent, almost always with some level of\r\nrecourse and you better have a strong Sponsor and one of the top brands to get\r\nthose projects financed. Interesting that with the perception in the market\r\nbeing that there are not a lot of great buy opportunities in the market right\r\nnow for domestic investors, that development remains the preferred investment\r\nvehicle for many hotel developers/investors, even in the face of many markets\r\nclearly getting overbuilt. So, for developers it is all about being able to tie\r\nup the right sites and being able to deliver financeable brands, and of course\r\nthe numbers have to work. \r\n\r\n\r\n\r\nOn the Equity side, everyone wants a good value-add story,\r\nbut there is less of that out there, particularly as the cost of renovation and\r\nrepositioning continues to rise. Many first-time investors in hospitality are\r\nlooking for yield, but sometimes that can be fool’s gold, as hotels are vulnerable\r\nto new supply. I favor the cost basis test in any hotel investment as the\r\nultimate test of likely returns and a good exit strategy. Development remains\r\nin favor as strong Developers with a track record, and access to capital,\r\ncoupled with new brands rolling out daily, to be a very viable alternative to\r\nacquisitions. If the cost to renovate and reposition is approaching replacement\r\nvalue, you might as well build, if you have the ability to do so. Off-shore\r\nequity continues to flood the market for existing assets, particularly on each\r\ncoast. Private Equity investors based here, including REITs, are keeping their\r\npowder dry for what most likely will prove to be a better buy environment in\r\n2018, but also starting to look at Development with the right Partners. \r\n\r\n\r\n\r\nMoney for hotel Investment? Debt available? Equity\r\navailable? Yes, yes and yes, but make sure you are aligned with the right team,\r\nthis cycle is sure to separate the players from the pretenders.