Global capital markets

Meet the Money 2010

®

Arthur Adler
Managing Director and CEO-Americas
Jones Lang LaSalle Hotels
May 5, 2010
Global capital markets

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2010: Global transaction volume to increase to $11-13B
Represents rise of 20-40% over 2009 levels; first
increase in two years

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 Protracted slowdown in global capital flows since 2007
However, recent transactions suggest that cross-border
activity is on rise again

Following an abundance of cross-border capital flows, which accounted for 58% of hotel
investments in 2007, cross-border activity declined to 46% of transaction volume in
2008. In 2009, cross-border activity decreased to 38% of total capital invested globally.
In YTD 2010, cross-border activity marked a slight rise to 39% of total volume.
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 Global CMBS issuance
Shutdown of securitized market resulted in drastic
transaction volume declines
Global CMBS issuance2004- YTD2010

350.0

300.0

250.0
US$billions

200.0

150.0

100.0

50.0

0.0
2004 2005 2006 2007 2008 2009 YTD 2010

U.S. hotel CMBS U.S. all other (non-hotel) CMBS All non-U.S. CMBS
Source: Commercial Mortgage Alert, Jones Lang LaSalle Hotels

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 Local debt financing: not restricted everywhere

Emerging Europe: Restricted

Western Europe:
North America: Very restricted
Restricted
East Asia: Abundant
Middle East:
Very restricted
South Asia:
Adequate
Africa: Adequate
Latin America: Very
restricted
SE Asia & S Pacific: Restricted

While debt financing for hotel investments remains restricted across most mature markets, regions
such as East Asia (which includes China) are not exposed to the liquidity drought.
Source: Jones Lang LaSalle Hotels

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Who is buying in today’s market?
An abundance of domestic and foreign equity
Foreign buyers
• Foreign buyers will be more active in 2010 than they were in 2009 and
will include Asian-based investors, investors from the Middle East and
European groups.
• Foreign high net worth groups may also be more active during 2010 as
they seek to earn higher returns in hotel real estate than with other
real estate asset classes.
Domestic buyers
• Buyers in 2010 will include private equity funds, institutional investors,
high net-worth investors, public and private REITs, and newly formed
funds.
• Public REITs positioned to buy selectively during 2010 due to their
elevated public market valuations.
• No single buyer group is expected to dominate the acquisition
landscape as private equity funds did at the height of the market.

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 Investors’ top buy and sell picks across the globe

Buy markets
Sell markets

Investors are pursuing acquisition opportunities in key global gateway cities to obtain a foothold at
a discount to replacement cost. Among investors’ top ‘sell’ picks are markets which posted strong
demand growth
Source: Jones during
Lang LaSalle the
Hotels. market
Data peak
is compiled frombut
Hotelnow risk
Investor facingSurvey
Sentiment oversupply.
(HISS); released in Nov-09

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 Recent high-profile hotel transactions
New buyers emerge; intrinsic value of real estate value
matters
Case Study: Sale of the Marriott Los
Angeles Downtown for $63 million
($134,000/key) in March 2010
Transaction summary
•Jones Lang LaSalle Hotels advised Leeward
Strategic Properties, Inc. on the sale of the
469-room asset located in the heart of
downtown Los Angeles.
•JLLH received over 20 first-round offers on the
hotel.
•The property was acquired by China-based
Shenzhen New World Group, Limited in the
group’s first hotel transaction and first property
purchased in the U.S., indicative of Asian
investors’ increased interest in prime assets in
the U.S.
Case Study: Sale of Ambassador East
Chicago for $25 million ($88,000/key) in
April 2010
Transaction summary
•Jones Lang LaSalle Hotels, working with a major
balance sheet lender and the borrower, executed
a short sale of the property that included
negotiation of a participating mortgage with the
lender.
•The sale is the first significant Chicago
transaction since late 2008.
•The property was marketed as a distressed
buying opportunity and investors responded with
approximately 80 executed confidentiality
agreements, over 20 property tours and 15 first-
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round bids.
 Recent high-profile hotel transactions
South East Asian buyers showing strong interest in hotel
sector
Case Study: Sale of Australian portfolio in
Q1 2010 for $160 million indicates strong
interest from Asian buyers
Transaction summary
•Jones Lang LaSalle Hotels advised Tourism
Asset Holdings Limited (TAHL) in the sale of a
hotel portfolio to Singapore-listed CDL
Hospitality Trusts for U.S. $160 million.
•The portfolio comprises five properties in
Brisbane and Perth totaling 1,139 rooms,
leased and managed by Accor.
•The transaction represents the largest
Australia hotel transaction in YTD 2010 and is
indicative of strong Asian buyer interest in
Australian hotel assets.
Case Study: Sale of Niseko Village, Japan in
Q1 2010 indicates solid cross-border
investment interest in Asia
Transaction summary
•Jones Lang LaSalle Hotels advised Citigroup
Principal Investments Japan Co., Ltd. in the sale
of Niseko Village in Q1 2010.
•The property was acquired by Malaysia-based
YTL Hotels & Properties Sdn Bhd.
•One of Japan’s most famous ski resorts, Niseko
Village includes a 506-room Hilton property and a
200-room Green Leaf hotel, two golf courses, ski
trails and natural hot springs.
•Japan continues to feature firmly on the radar of
South East Asian investors who are drawn by the
transparent real estate market. 10
 Recent high-profile hotel transactions
High-quality assets sought after; liquidity increasing in
emerging markets
Case Study: Downtown Paris hotel sells to
North American investor for $50.4 million
Transaction summary
•Jones Lang LaSalle Hotels advised Strategic
Hotels & Resorts in the sale of the 116-room
Renaissance Paris Hotel Le Parc Trocadero in
December 2009.
•The hotel was acquired by Westmont
Hospitality Group for EUR 35 million ($50.4
million) which equates to $434,000 per key.
•The asset is encumbered by a management
agreement and the new owner will commit
capital expenditures to the property.
Case Study: Sale of Moscow airport hotel
marks one of largest transactions in Russia
since downturn
Transaction summary
•Jones Lang LaSalle Hotels and international law
firm Salans advised Nairay Holdings Limited in
sale of the Sheremetyevo-2 Hotel to one of
Scandinavia’s largest hotel companies.
•The 293-room asset is located next to the new
Terminal D of Moscow’s Sheremetyevo
International Airport.
•The sale marks one of the most significant hotel
transactions in the Russian Federation since the
onset of the global economic crisis, and shows
that sector is poised for a rebound.
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A closer look at U.S. capital markets

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 U.S. hotel sales to increase to $3.5 billion in 2010
YTD April 2010 deal volume reaches $1.1 billion; 80%
increase on PY period
UnitedStates hotel transactionvolume1990- 2010F
50.0 250,000

45.0 225,000

40.0 200,000

35.0 175,000
Transaction volume($B)

30.0 150,000

Priceper key
25.0 125,000

20.0 100,000

15.0 75,000

10.0 50,000

5.0 25,000

0.0 -
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010F
REITs 9/11 Credit Credit
Source: Jones Lang LaSalle Hotels formed boom crisis
Note: Transactions $10M and above. Excludes land site and casino deals
YTD 2010 is through 4/26/10

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Sources of debt
 Lenders
 Money center banks have new commercial mortgage capital, and are starting
to seek hotel loans because of the competition on other, safer asset classes.

 Regional/local banks typically have extensive exposure to CRE, but some still
have capital to lend. Relationship focused = deposits; single asset loans over
$35M difficult to approve.

 Foreign banks have been quicker to get back in the market and frequently have
lower priced capital relative to their domestic competitors.

 Insurance companies have the most attractive pricing, but are exceptionally
selective; sizing loans to 50% or less of their underwritten value, prefer full service
assets in top-25 markets.
Mortgage REITs have significant pools of capital to place.
 Other Lenders with opportunistic equity seek high-yield lending opportunities,
and consequently are able to lend more proceeds or undertake a ramp up story.

 CMBS lenders
 Traditionally comprised over 30% of mortgage originations, trying to get
programs off the ground but it will be a long road.

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U.S. hotel CMBS loan delinquency rate reaches 11.2%
Current balance of delinquent hotel CMBS loans is $8.1
billion

Hotel loandelinquencyratebymonth(as %oftotal CMBShotel loans)

12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Aug-08

Nov-08

Apr-09

Aug-09

Nov-09
J an-09

J un-09

Sep-09

Feb-10
J un-08
J ul-08

Sep-08

Feb-09

May-09

J ul-09

J an-10
Mar-09

Oct-09
Oct-08

Dec-08

Dec-09

Mar-10
Source: Realpoint Data
through March 2010

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 U.S. maturities in 2010 comprised of short-term loans
CMBS hotel loan maturities by year
$20.0 1,000
$18.0 900
$16.0 800
Billionbalance

$14.0 700

Loan count
s

$12.0 600
Current unpaid

$10.0 500
($billions)

$8.0 400
$6.0 300
$4.0 200 Current(non-delinquent)
$2.0 100 Delinquent

$- - Total loan count

2011

2014

2017
2010

2012

2013

2015

2016

2018

2019 and
beyond
Comprised largely of 3-year loans; Dominated by mid-scale and
dominated by large upscale and luxury smaller upscale properties with 10-
properties. Extension options will push year loans with no extension
many of these maturities into 2011 but at options.
that point they will need to get
refinanced.
Source: Realpoint. Based on all 3,252 loans tracked in Realpoint (total unpaid balance of $68.8 billion)
As of 4/19/2010

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