Although the recent credit crisis is expected to have a significant impact on the hotel real estate industry, it also served as a necessary corrective, according to Roger Barris, managing director EMEA at Merril Lynch International in London.
Although the recent credit crisis is expected to have a significant impact on the hotel real estate industry, it also served as a necessary corrective, according to Roger Barris, managing director EMEA at Merril Lynch International in London.
'It was a reversion to normality and a return to a more logical pricing of risk,' he said during a forum on the hotel real estate market at EXPO REAL in Munich. 'When the market comes back it will never come back to pricing we saw before June, but to a healthier pricing.'
The main factor attributed to the market’s unsustainable price levels was the fact that risk wasn't being priced. 'The shift from leases to management contracts was good for hotels but risky, and the risk associated with these contracts wasn't being priced,' Barris said.
Another positive consequence of the credit crisis is its potential spur for emerging markets. Secondary and emerging markets were generally left unaffected by the crisis, 'We have a situation where people are more confident with peripheral markets, which is where we're active,' Barris said.
This will play a role in the Marriot Hotels' plans as well. Leeny Kelly Oberg, senior vice-president at Marriot Hotels International in London, told the conference that 'Marriot is willing to put capital to work in regions we haven’t participated in before'. She noted that this wasn’t so much a fundamental shift in Marriot's capital strategy as an international shift.
A less enthusiastic opinion about emerging markets was offered by Mike Goodson, managing director Europe at Host Hotels in London: 'We are still going to be cautious about going into emerging markets,' he said. 'I'd like to get a property in London before we go to Eastern Europe.'
Ultimately, a return to Western European markets is expected once a price correction sets in. At the moment a price gap exists between sellers who assume that prices will go back to what they were six months ago and buyers who insist on adjustments to current conditions.
What this means going forward is a decrease in transactions and a tendency towards more modest-sized deals. 'There's a lot of money looking for a home. People want something that theyll feel more secure about and which is easier to get financing. That means smaller deals,' said Leeny Kelly Oberg.