1. A continued low-level of activity for single-asset, “market” transactions. Sellers will remain reluctant to sell at current values based on distressed levels of income and given the downward pressure on capitalization rates. Buyers will focus on other opportunities, including distressed assets, discounted debt, and other asset classes.
2. Smaller ownership companies will explore either privatizing, merging or selling. This will be driven, in large part, by the debt level on properties and the timing of debt maturity. Those with high levels of maturing debt will be unlikely to replace that debt without substantially increasing their equity contribution.
3. Small and large ownership companies will explore issuing new shares or taking on financial partners in order to raise the capital necessary both to continue operations and to meet the higher levels of equity that banks will require.
4. The larger ownership companies will closely watch to see how the initial property company IPOs fare. If the equity markets continue to recover, expect a rash of public offerings involving property portfolios. Also, expect a number of existing public companies to explore using their shares as capital to acquire distressed hotels and hotel companies.
Do you agree with these scenarios?