TAMPA, Fla., Jan. 18, 2006 (PRIMEZONE) -- According to The Plasencia Group, Inc., the leading hospitality transaction and consulting services firm representing owners of hotels, resorts and golf courses, there will be a continued upward growth of transaction activity throughout 2006 and possibly longer. This is due, in part, to a number of major property owners who will need to shed assets in the beginning of 2006 and because of the quality of hotels hitting the markets this year, which are expected to be an improvement from last year.
In 2006, The Plasencia Group advises hotel and resort owners to take advantage of the appetite for expanding lodging assets and suggests that those investing in the lodging industry take advantage of low interest rates, negligible supply increases and strong operating fundamentals.
"As we near the peak of the current cycle, we are likely to see some very prominent hotels and resorts exchange hands," said Lou Plasencia, President and CEO of The Plasencia Group, Inc. (TPG). "Current owners of hotels will want to fully optimize their returns rather than getting stuck with them for another cycle. And there should be an improvement over the next six months in the quality of hotels hitting the market."
There are several elements that could signal "the beginning of the end" of the current cycle. Once ten-year treasuries begin to offer better rates, passive investors will go back to safe harbors offered by fixed income vehicles. Also, when operators who were managing their properties in a more lean fashion after 9/11 go back to doing business their old, undisciplined ways, there will likely be a slow-down on the investment side of the industry.
Plasencia noted that REITs (Real Estate Investment Trusts) will continue to sell their less strategic portfolio holdings, largely in bulk or clusters, and opportunity funds, which have been active and buyers over the past 24 months, are expected to be the most active sellers in the next year. Others who will be looking to maximize their returns are those owners that have held assets for a number of years and are now anxious to sell while the going is still good.
Expect to hear of significant transactions involving at least two of the larger lodging REITs and one or two brands in the first quarter or early in the second quarter of '06. The likelihood is that some will be taken private and that a good portion of these REIT assets will be immediately sold off by the new owners. There will be some great below-replacement-cost deals to be had. And as larger groups of assets hit the market, they will definitely have a negative impact on overall values and that will distract some vendors.
"We see little slow-down in the volume of transaction activity throughout 2006 and possibly longer," said Plasencia. There are still a number of major owners who will need to shed their assets in the near short term. As long as 10-year Treasuries remain below 5 percent and guest room supply levels remain where they are, pricing will also remain at currently strong levels."
"We believe capitalization rates will rise only when nominal interest rates increase by another 150 to 200 basis points above current levels. That is not likely for at least 12-18 months," Plasencia added.
As for those investing in the lodging industry, "Take advantage of the huge amounts of OPM (other people's money), low interest rates, negligent supply increases and strong operating fundamentals," Plasencia counseled.
Plasencia suggested that investors seeking larger portfolios with a short-term hold horizon will find numerous attractive opportunities. And over the near- and long-term, he pointed to several very attractive markets like Austin, Boston, Charlotte, Chicago, Honolulu, Indianapolis, Nashville, New Orleans, New York City, Orlando, Philadelphia, Phoenix, Raleigh, San Diego, San Francisco, Seattle and the Washington, D.C area.
About The Plasencia Group, Inc.
Founded in 1993, The Plasencia Group is the leading hospitality transaction and consulting services firm representing owners of hotels, resorts, and golf courses, with regional offices in Tampa, Hartford, Chicago, Dallas, Austin,, Houston, Little Rock, San Francisco and San Diego. In conjunction with its affiliates, Regent Street for luxury properties and Sun Hospitality Advisors for limited service properties, The Plasencia Group has provided personalized, valued-added investment opportunities and services to clients such as Prudential, Host Marriott Corporation, MeriStar Hospitality Corporation and Metropolitan Life Insurance Company. The Plasencia Group offers a full range of value-added solutions, including transactions, property valuation analysis, financial and strategic planning, project management and disposition, and proprietary industry research.