Amid Troubled Hotel Sector, Companies Look to Boost Management Portfolios

Many hotel owners are looking at a troubling two years or so, as a large portion of their loans are coming due for refinancing in an environment of declining RevPar. In other words, many owners will be asked by lenders to contribute more equity into their loans, just when that money may be very hard to come by. In this environment, and with many owners unlikely to be able to transact a sale because of the continuing credit freeze-up, there has been more of a premium put on successful asset management. Two management companies announced their plans to beef up their management portfolios at the NYU International Hospitality Industry Investment Conference, held in New York, which concluded Tuesday. Dow Hotel Co., a hotel ownership, investment and management company, said it plans to expand into the luxury hotel space, a segment that has been hard hit by the recession. But while the luxury segment’s prospects look glum at the present time, luxury hotels also struggled after the industry downturn after the Sept. 11 terrorist attacks, and the segment was able to rebound, said Murray Dow, president of Dow Hotel Co. Many lenders are also looking for management expertise, he said, citing JP MorganChase, which inherited a significant number of hotel loans when it acquired Washington Mutual in September of 2008. The company plans to add up to five management contracts to its portfolio over the next year, including a substantial portion of four-and-five-star level hotels, he said. A major reason for the company’s decision to expand into the luxury segment was the result of a growing number of requests for assistance from existing clients who owned luxury properties not managed by Dow, he said. The company will likely want to have an ownership stake in the properties it manages. “We invest in eight out of 10 hotels we manage,” Dow said. “It really shows we have aligned our interests with owners.” Another hotel management firm, Davidson Hotel Co., will add several new hotels to its management portfolio this summer, and as many as eight properties for this year. The company’s management and ownership portfolio is now 10,200 rooms, all in the full-service sector. The company announced that it has named Steven Margol as its chief investment officer, who will continue to oversee the team responsible for identifying new third-party management and asset management opportunities, sourcing and negotiating new investment/acquisition opportunities, coordinating refinancing and disposition activities, and managing joint venture opportunities. Previously, he was Davidson’s executive vice president of business development. Acquisition opportunities should be plentiful over the next eighteen months, said John Belden (pictured), Davidson’s president & CEO. He cited a recent investment report that forecasted that as many as two-thirds of hotel loans will not be able to be re-financed with their existing owners, because of falling property values and illiquid debt markets. So, a lot of assets will need to put on the right course. “In 35 years, that’s all we’ve done,” he said.