Six months into the worst crisis the hospitality industry has ever seen, those who make a living estimating what hotels are worth are certain property values have plunged. But it's a lot less clear by how much.
Appraisers, who normally rely on a formulaic approach to pricing hotels, are now trying to answer questions ranging from when a hypothetical vaccine will be widely adopted to whether daily housekeeping will be the norm again. The goal is to figure out where prospective hotel buyers and sellers might see eye to eye.
It's an analysis that can change by the week based on reports from public health officials. But it's starting to carry more weight: Many six-month relief agreements that banks have given pandemic-riddled hotel owners on loan payments are expiring, likely setting off a wave of distressed properties over the next several months ripe for purchase off the discount rack.
That means appraisers are establishing the new normal for hotel values in a sector that is unrecognizable after suffering months of the coronavirus’s worst fallout. And in a Chicago market that relies heavily on convention business and corporate travel to support its hotel community, the drop-off could be more dramatic than those of other big cities.
“What’s happened is more severe than anything we’ve seen in the industry looking at 40 years of data,” says hotel consultant Hans Detlefsen of Chicago-based Hotel Appraisers & Advisors.
During normal times, appraisers typically try to determine a hotel’s market value by projecting a bottom line over a 10-year period using its recent financial information, data from similar hotels and other market factors.
But the coronavirus has not only diminished the relevance of past performance, it’s also created such a foggy picture about when demand will pick up—and when public health officials will allow it to—that applying recovery road maps from the Great Recession or 9/11 is also difficult.
There’s also a dearth of actual sales for comparison, an important gut-check for appraisers to fine-tune their valuations. Hotel transaction volume nationwide during the second quarter was down by 94 percent compared with the same period in 2019, according to brokerage Jones Lang LaSalle. Only one Chicago-area hotel, the Chicago Marriott Northwest in Hoffman Estates, has sold since April, according to research firm Real Capital Analytics.
Trying to factor in all of the uncertainty, Detlefsen says projected income for many hotels for 2020 has not only shrunk but turned negative. Some will continue losing money into 2021, he says, and many hotels won’t return to pre-COVID levels until 2023 or 2024. “It might take travelers years rather than months to bounce back to 2019 levels.”
That gloomy outlook is reflected in two recent valuations of large downtown Chicago hotels: The 1,635-room Palmer House Hilton was appraised last month at $306 million, 45 percent less than its appraised value when New York-based owner Thor Equities refinanced the property in 2018. Thor, which has $423 million of debt on the property, was hit with a foreclosure lawsuit last month. Elsewhere in the Loop, the JW Marriott Chicago was also recently appraised at $210 million, down from $370 million when it was refinanced in 2017.
Those may be among the most extreme drop-offs, since large, full-service hotels reliant on group business might have a tougher road ahead than smaller, limited-service properties, says Stacey Nadolny, managing director and senior partner at hotel consultancy HVS.
She estimates the range of lost value today compared to 2019 varies wildly—between 15 and 40 percent for most hotels—because of the uncertainty about when the pandemic will subside, how many hotels will survive it and when demand will support strong room rates again. Hotel appraisals also factor in the potential for a property to be converted to another use such as an apartment building, but the pandemic has raised questions about the profitability of other property sectors, too.
“We’ve never had to rely on so much guessing and speculation,” Nadolny says, though she cautions that it may not be all bad for hotel investors and their lenders because of a deep pool of investors ready to pounce on distressed assets.
“There’s so much capital in the marketplace and potential buyers that had been waiting out a downturn,” she says.
Whether those investors will bet on Chicago hotels is unclear. In a sign the city’s hotels are suffering more than those in other major markets, $900 million, or almost half, of all commercial mortgage-backed securities debt—loans pooled with others and sold off to bondholders—backed by Chicago-area hotels is in special servicing, typically a red flag that borrowers will default. That’s the third-highest amount in the country, behind only New York and Miami, according to research published this month by JLL and commercial loan tracker Trepp.
Hotel lenders and special servicers dealing with hotel-backed CMBS loans are watching appraisals closely as they weigh whether to foreclose, sell the debt or continue to let borrowers slide on loan payments and hope things will turn around quickly.
Getting accurate appraisals will be crucial in the weeks ahead “because that’s the best metric we have right now (since) none of the crystal balls we have are functional these days,” says Mark Silverman, an attorney in the Chicago office of law firm Dykema Gossett who represents special servicers in loan enforcement and commercial foreclosures.
Most of his clients are hoping to find a resolution with borrowers and avoid litigation, though he foresees a spike in hotel foreclosures. “I think it’s unavoidable,” Silverman says.
In the meantime, opportunistic buyers are standing by. And values may be so low they could entice investors that have historically overlooked Chicago because of heavy tax, regulatory and union labor burdens, says hotel consultant Rob Hunden of Chicago-based Hunden Strategic Partners.
“People will just wait until the price makes sense,” he says. Compared to 2019 hotel values, “we’re seeing things where I would not be surprised if (buyers) are picking up assets for between 30 and 40 cents on the dollar.”
"hotel" - Google News
September 26, 2020 at 03:01AM
https://ift.tt/3n2PKH8
Hotel appraising a guessing game in pandemic - Crain's Chicago Business
"hotel" - Google News
https://ift.tt/3aTFdGH
https://ift.tt/2xwvOre
Bagikan Berita Ini
0 Response to "Hotel appraising a guessing game in pandemic - Crain's Chicago Business"
Post a Comment