When will bull market end?
If it's March it must be time to head off to Berlin for the International Hotel Investment Forum. This year, some 1,300 delegates convened on the theme of "Navigating the Seas Ahead".
Despite some years of pessimism in the hotel industry post 9/11, this time around there was an overt mood of optimism in the air. However, there was also an underlying question: When will the current bull market end?
Jones Lang LaSalle recently announced that a record
These are just some of the headlines which show that, as it was described in Berlin, a "wall of money" is being targeted on the hotel sector.
Positive as this sounds, I detected a number of concerns and questions among the people I spoke to and the meetings I participated in.
How will existing investors make their exit? There's hope that the long-term financial institutions may start to favour the sector - as they do in the USA - but little hard evidence has been presented. Some mooted the idea of stock market flotations.
Are current prices too high? By historic standards yes, but they also reflect the current market conditions with so much money chasing relatively little quality product. However, I also spoke to several people who said that finding the right deal at the right price was the real challenge of today's environment.
Are deal structures appropriate? In general they are, but some are felt to be too aggressive and leave particular situations exposed. Deals where ratios of debt to value are too high or structures where the leases were too close to the profit from operations were particular concerns.
The answer to the main question? Most anticipate at least a couple more years of good conditions, but the variables described above could have an impact. The positive and negative connotations of the outcome will impact throughout the hotel industry in terms of property values and lender attitudes.
Let's hope the bulls win!
Berlie International Hotel Investment Forum
David Bailey, director, TRI Hospitality Consulting "For me the most important point to take from the forum was that we shouldn't be complacent when considering the market and its potential developments over the coming year. There are several economically worrying factors:
high oil prices, EU tensions such as protectionism, and the high UK economic debt."
Clive Hillier, director, Vision Hospitality Asset Management "The most important element of the Berlin forum was, for me, the positivity of the industry. We're right to be confident about our ability to tackle challenges of the coming year. Despite 7/7, the underlying performance of hotels is going from strength to strength. And the increase in new investors shows just how hot the market is."
Ramsey Mankarious, CEO, Cedar Capital Partners "This year's forum showed just how well things are going at the moment. The mood in the industry seems to be upbeat and the market is doing well. Hotels are becoming an increasingly popular asset class to invest in, with the result that many more people are buying and selling."
Sean Worker, Interstate Hotels & Resorts "This year's forum reflected the way the industry is progressing. It was good to see that the industry is evolving and that more companies based in Europe are willing to look to the East and areas which are often considered to be high-risk. Overall, it highlighted the fact that expanding and breaking paradigms in the industry is the way forward."
