Regional Banks Are Back: What That Means for Hotel Deals

Glenn: [00:00:00] Hey, everybody, let me start that over. I’m not sure if the thing clicked big enough. Everybody’s your hospitality friend Glenn here at the Hunter conference, Atlanta, Georgia. Got my friend Ryan Bosch, Principal at Arriba Capital. But first I want to thank our friends over at Actabl Actabl, they give you the power to profit. Please check them out at actabl.com. So before I hit the record button, you said something to me that surprised me. The banks were lending again. Yeah, opening up a little bit. This surprises me.

Ryan: [00:00:29] Yeah. We’re seeing a resurgence of regional banks, I think over the last couple of years post Silicon Valley Bank collapsing we saw a pullback. And we’re starting to see guys really enter back into the market looking to grow their loan books again. You know we’re seeing more bids on deals that we take out to market than we ever had. We’re seeing leverage on construction tick up, especially when I say this primarily in the middle market. So I’d say sub $40 million transaction sizes.

Glenn: [00:00:55] And that’s mid market.

Ryan: [00:00:56] Yeah.

Glenn: [00:00:57] And for me that’s not mid market. But yeah, I hear where you’re coming from. I mean properties themselves are trading at much higher values than they have in a long, long time. Plus it’s getting more expensive to build them. Et cetera, et cetera, et cetera. So mid-market, when you say mid-market, is there a particular sweet spot in the mid-market that seems to be trading better?

Ryan: [00:01:15] Trading in terms of sales, I’d say we’re seeing again, like sub $30 million assets we’re seeing have a lot of velocity. Right now we’re seeing distressed assets kind of hit the market. And when I say distressed not necessarily cash flow issues on the asset level, but more capital stack issues where we’re seeing assets that were over levered, you know, underwriting to aggressive pro forma numbers, not hitting those pro forma numbers and sponsors looking to trade.

Glenn: [00:01:42] Yeah. That’s a why do you think people get caught up in that trap? Are they? For me as a novice, I’m thinking, oh, they’re probably trying to get the loan. So they’re probably being a little bit more aggressive. And then they have best, best hopes that it doesn’t work out.

Ryan: [00:01:56] Exactly. It’s always leverage. Leverage is always the thing that kills guys long term. But I’d say, you know, it’s that as well as the Pip cycle, which everyone’s been talking about, but we’re kind of seeing the extend and pretend phase still come to an I was just about to say.

Glenn: [00:02:09] Come to an.

Ryan: [00:02:09] End. Come to an end, because.

Glenn: [00:02:11] What I’ve been hearing from the brands is like, now they’ve really got to, you know, get strong with that. And I sympathize with both sides because obviously the owners and operators got smacked down so hard in that little thing that happened here that canceled this event six years ago. And people still haven’t fully recovered from.

Ryan: [00:02:30] Yeah, exactly. And you look at some of the acquisitions guys did, let’s say 2019, where they were borrowing at 4% at 75% leverage on a pro forma kind of turnaround asset. Hard to make those numbers work in today’s environment.

Glenn: [00:02:43] Yeah. So what I was trying to say before I got distracted was that the brand said, hey, don’t worry about the pips. We understand what’s going on. But now they’re coming back in and saying, you’ve got to do this because brand quality and brand imaging is really at stake. And while it might be tough for those operators to get it done, the brands really have no choice but to go ahead and do that, which creates a complicated problem for everybody.

Ryan: [00:03:06] Absolutely. And that and that’s what’s forcing some of these sales in the market today.

Glenn: [00:03:10] Yeah. Interesting. Where is your what are you most excited about for opportunities going forward this year?

Ryan: [00:03:15] I think I’m most excited about acquisition market opening up. I don’t think it’s going to be gangbusters by any means, but I think we’re going to see some really interesting trends as the year goes on.

Glenn: [00:03:24] Yeah. I mean, it seems to me, again, in times that are tough and I fundamentally believe are in and going to have even tougher times moving ahead, not like 2020, but we’re going to have tougher times ahead that we really need to really redouble and rethink everything and just be really smart about the way that you’re going and hopefully you’re not playing the Glenn says. Really drinking game because you’d be really trashed out right now.

Ryan: [00:03:47] Yeah. Look, no, on that note, I think, you know, when times are tough, it typically opens up some really solid buying opportunities. So I think guys that are sitting on cash have access to equity, right. We’re going to see some interesting deals this year.

Glenn: [00:03:59] And that is what happened during Covid. The bold made major moves where general philosophy was like, what are you doing? And all those folks are doing really, really well today.

Ryan: [00:04:09] Absolutely.

Glenn: [00:04:10] So I love the strategy that a lot of people have is zigging when others are zagging. Yep. You know anything else that you want to add?

Ryan: [00:04:17] No. That’s it. Looking forward to a conference. Hopefully. Today’s the only day that there’s rain here, but it should be a fun one.

Glenn: [00:04:22] Yeah, it should be fun. All right, everyone, we’ll see you here or on the road. Take care. Bye bye.