Mark Fair, Managing Director, Select Service Division
A hot topic repeatedly debated during the 32nd Annual NYU International Hospitality Industry Investment Conference was the outlook for the volume of distressed transactions. I participated in the finance workshop “Have the Flood Gates Opened or is it just a Trickle?”
The consensus among panelists was that there will be more transactions this year, but the increase will likely come in form of a steady rise as opposed to a large flood. I do see the increased volume of distressed sales coming. But it is going to build slowly. There may never be a tidal wave: Panelists do not anticipate the level of distressed activity seen during the RTC days.
One of the reasons why more assets collateralized by CMBS loans have not yet come to market is due to automatic one or two year loan extensions. But lenders will be less willing to “extend and pretend” in the future. Undeniably, more assets are coming to market now and deal flow will build momentum over the next 12 months. The transactions pushed by special servicers will in many cases be comprised of assets where values have dropped significantly and assets that don’t get worked out.
Note sales are also on the rise as balance sheet lenders increasingly recognize issues. The time frame from marketing the note to closing the deal is often significantly shorter than for an asset transaction. Additionally, I’m increasingly seeing investors wanting to get to certain assets by buying their debt.
Asked if any asset is saleable, even one with negative cash flow or requiring a significant amount of capex? Absolutely, at the right price, anything will trade.
- Mark
