Existing home sales fell 0.9 percent in February from January but still notched their second highest level since May 2010, the National Association of Realtors said on Wednesday.

“We are starting to improve slowly. There is some encouraging news, but the dramatic things that need to happen to really turn the market around aren’t there,” said Mitchell Hochberg, Principal at Madden Real Estate Ventures in New York.

Realtors say the labor market needs to strengthen significantly and banks must ease lending conditions, which every month result in about a third of contracts being canceled, for a decisive recovery to take root.

Job creation has stepped up in recent months, with employers adding a total of 734,000 jobs to their payrolls over the last three months. However, the unemployment rate remains at a very high 8.3 percent.

Despite the weak sales pace last month, the median home price rose 0.3 percent from a year ago to $156,600 – the first yearly increase since November 2010 – adding to signs of a budding recovery.

Data on Tuesday showed permits to build homes rose to a near 3-1/2 year high in February, and a report on Friday is expected to show new home sales increased last month.

Some economists said smoothing out the data to account for the extra day in February could have contributed to the surprise drop in sales last month. Economists polled by Reuters had expected sales to rise to a 4.62 million pace.

“Using last year’s seasonal adjustment factor instead of this leap year’s, existing home sales would have actually risen by 3.0 percent month on month to 4.77 million units,” said Ellen Zentner, an economist at Nomura Securities in New York.

The data had little impact on U.S. financial markets, though sales prices for U.S. Treasury debt saw some flight to safety trades.

SALES TRENDING HIGHER

Since bottoming around a 4.05 million-unit pace in July, home resales have largely held up.

Compared with February last year, sales were up 8.8 percent and according to JPMorgan economist Daniel Silver, the gains were tracking a seasonally adjusted annualized rate of 30 percent so far this quarter.

“The unusually mild winter may have helped boost existing home sales in recent months, but we do not think this is the only factor driving up sales,” said Silver.

“The upward trend in the data began before the abnormal weather started, and we do not see a statistically significant relationship between deviations from normal temperatures and existing home sales during winter months.”

But recovery will not be easy and mortgage rates have spiked in recent weeks. Demand for home loans fell last week partly in response to rising rates. Fixed 30-year mortgage rates increased 13 basis points to average 4.19 percent last week.

Sales last month were mixed, declining sharply in the Northeast and West. They were up in the Midwest and South.

The housing market continues to be choked by a glut of unsold properties, which are weighing down prices.

Last month, the inventory of unsold homes on the market increased 4.3 percent to 2.43 million units – representing 6.4 months’ supply, up from 6.0 months in January. These number were not adjusted for seasonal fluctuations.

When adjusted for these variations, the months’ supply edged down to 6.5 months’ worth from 6.6 months in January. A supply of six months generally is considered ideal, with higher readings pointing to price declines.

Inventories are well below their 4.04 million units peak in July 2007 and in some parts of the country, which were not severely affected by the recession, realtors are actually short of property to sell.

“Our biggest problem is the lack of inventory,” said John Ford, owner of Ford Realty in Boston. “If the property is priced correctly, we have bidding wars,” said Ford, who operates in one of Boston’s upscale areas.

A separate report from CoreLogic showed the number of properties in the foreclosure pipeline fell 11.1 percent to 1.6 million units in January from a year ago, representing 6 months’ worth of supply.

Last month distressed properties – foreclosures and short sales – which typically occur at deep discounts, made up a third of overall sales last month.

Investors bought 23 percent of homes sold last month, with first-time buyers accounting for about a third of the transactions.

In another report released Friday, a survey reported an uptick in consumer sentiment, surpassing analysts’ expectations.

The Commerce Department said home sales slipped 0.9 percent to a seasonally adjusted 321,000-unit annual rate. December’s sales pace was revised up to 324,000 units, the highest in a year, from the previously reported 307,000 units.

October and November sales also were revised higher. Although sales fell last month, they were higher than economists’ expectations for a 315,000-unit rate. Compared to January last year, new-home sales were up 3.5 percent.

Despite the weak sales last month, details of the report offered further fresh signs of green shoots in the housing market, with the months’ supply of homes on the market falling to 5.6 months the lowest since January 2006.

That compared to 5.7 months in December. A six-month supply is generally considered ideal.

The median price for a new home rose 0.3 percent to $217,100, the highest level since October. Compared to January last year, the median price was down 9.6 percent. The inventory of new homes on the market was the lowest on record.

“The report shows traction for a housing industry anxious to ascend from the bottom,” said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York. “To climb back, the foreclosure overhang needs to clear, prospective home buyers must find it less difficult to qualify for a mortgage and consumer confidence must improve.”

Demand for housing could get a boost from the strengthening economy, especially the labor market, which is helping to lift confidence among Americans.

The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment edged up to 75.3 in February, the highest in a year, from 75.0 in January.

Consumer sentiment improved a tad in February to rack up a 12-month high as Americans became more confident about the economy’s resilience, a survey released on Friday showed.

The Thomson Reuters/University of Michigan’s final reading of the overall index on consumer sentiment came in at 75.3, edging up from 75.0 the month before. It was the highest level since February 2011.

It surpassed economists’ expectations of 73.0 and recovered from a decline to 72.5 in February’s preliminary reading.

“It is not that surging oil prices, instability in the Mideast, the European crisis or uncertainties about future tax and spending policies could not ultimately derail the recovery, but that consumers expect the pace of overall economic growth to continue to slowly restore lost jobs despite these potential problems,” the survey director, Richard Curtin, said in a statement.

The survey’s barometer of current economic conditions eased to 83.0 from 84.2 but its gauge of consumer expectations rose to its highest in a year, at 70.3 from 69.1.

The market for new homes faces stiff competition from previously owned homes, many of which are selling at a huge discount because of foreclosures.

But economists say house prices may be close to a bottom, citing recent declines in the supply of unsold previously owned homes and the homeowner vacancy rate.

The months’ supply of previously owned homes on the market fell to a near 6-year low of 6.1 months in January.

The homeowner vacancy rate, which is closely correlated to the month’s supply, fell to 2.3 percent in the fourth quarter of 2011 from 2.4 percent in the prior three months. The rate peaked in 2008.

“While still elevated, their current levels are again consistent with stable or even slightly rising house prices,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. “This, in turn, would imply that one important drag on the economy will cease to exist.”

Data this week showed home resales rose to a 1-1/2 year-high in January. Confidence among homebuilders this month approached a five-year high and builders are undertaking more residential projects, mirroring the economy’s generally upbeat tone.

Still, both sales and home construction remain far below their 2005 levels.

The Federal Reserve has suggested a number of ways other policy makers could step in to help the beaten-up market and is considering purchasing more mortgage-backed securities to drive mortgages rates even lower.

New-home sales last month rose in two of the four regions, but fell sharply in the Midwest and the West.

Obama rejected arguments that only time would heal the housing market. Data released Tuesday showed house prices have dropped by nearly a third from their peak. See story on house prices.

“It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom,” Obama said in a speech in a Washington, D.C., suburb.

Some Americans with good credit and clean payment histories are rejected for refinancing because their mortgages are bigger than the current prices of their homes, a term called being “under water.” Obama said more than 10 million homeowners have underwater mortgages.

Last week in his State of the Union address to the nation and members of Congress, Obama said the new refinance program would result in “no more red tape, no more runaround from the banks.” Read ‘Obama calls for economy built to last”

Almost as soon as Obama finished his speech to Congress last week, analysts expressed scepticism that the plan could pass Congress. Read ‘Obama refi plan has bumpy road ahead’

The White House has already set up a plan, called the Home Affordable Refinance Program, to help borrowers refinance whose loans are backed by Fannie Mae and Freddie Mac.

But so far, the programs “have not worked on the scale we had hoped — not as many people have taken advantage of it as we wanted,” Obama said.

Yelena Shulyatyeva, an economist with BNP Paribas, said Obama’s plan “would potentially have a significant impact” and estimated that more than 1 million homeowners would be eligible.

But Shulyatyeva said, “Overall we think it is not a game-changer” because Republicans in Congress are unlikely to go along with it.

Rep. Scott Garrett, a Republican from New Jersey who is chairman of the House subcommittee that oversees Fannie Mae and Freddie Mac, rejected Obama’s proposal as government intrusion in markets.

“Until the president gives up his crusade to increase the government’s interference in the housing market, home foreclosures will continue to rise, our economy will falter and every American’s share of the national debt will continue to grow,” Garrett said.

Obama said the new plan is not designed to help irresponsible borrowers or speculators.

The new program would focus on borrowers whose loans are not owned by Fannie Mae or Freddie Mac and operate through the Federal Housing Administration.

Garrett said the FHA is “already on a collision course with bankruptcy” and the Obama plan will only make that “disastrous situation worse.”

To qualify, borrowers would need to be current on loans for the past six months and have missed no more than one payment in the prior six months.

Borrowers would need a minimum credit score of 580. The White House said that nine out of 10 borrowers have a credit score adequate to meet that requirement.

The mortgages to be refinanced must be for an owner-occupied principal residence.

The loans could not be larger than current FHA conforming loan limits that range as high as $729,750 in high cost areas.

Borrowers would not have to submit a new appraisal or tax return. A lender would only have to confirm that the borrower is employed. Some unemployed homeowners might also qualify, the White House said.

The cost of the program is estimated between $5 and $10 billion, to be financed by a fee on large financial firms, the White House said. Congressional Republicans have said they will oppose any such fee.

The administration is also asking Congress to streamline refinancing to all borrowers with Fannie Mae and Freddie Mac loans.

The White House expressed frustration with the Federal Housing Finance Agency, which at the moment is being run by Ed DeMarco.

While the White House argues that the government-sponsored giants could have acted, “the GSE’s have not acted, so the White House is calling on Congress to do what is in the taxpayer’s interest,” the statement said.

The steps include eliminating appraisal costs for all borrowers, increasing competition so borrowers can get the best possible deal and extending streamlined refinancing for all GSE borrowers.

Mitchell Hochberg, managing principal of Madden Real Estate Ventures, a real estate firm in New York, said that in the final analysis, Obama’s refinance proposal was simply “window dressing in an election year.”

“What they’ve done is very interesting in my opinion, but at the end of the day it doesn’t address the heart of the matter, which is the economy,” he said.

“Unless the economy is fixed, the housing market is not going to recover,” he said.

In a separate release, the FHFA asked investors to contact the agencv if they are interested in participating in a foreclosure to rental program.

Shulyatyeva said she was disappointed with the lack of detail in the FHFA release.

“It’s the fastest pace that the city has ever seen in terms of hotel development,” said Kimberly Spell, chief communications officer at NYC & Company, the city’s tourism division.

But the huge rate of growth has prompted some to question in New York can attract enough visitors to fill the rooms.

NYC & Company expects to welcome 40 new projects over the next 30 months. And while the outer boroughs comprise an increasing chunk of that growth, 22 new hotels, complete with 4,120 rooms, are now under construction in Manhattan alone.

Harry Gross’ new 67-story Marriott hotel is rising at the corner of Broadway and West 54th Street. It promises to be the tallest in the city. (Marriott International, Inc. )

The city’s largest hotel project, a 68-story high-rise that will one day house twin Marriott hotels, is now rising along Broadway and West 54th Street. Closer to Eighth Avenue, construction is underway on a new 34-story hotel with mystery backers.

Further south, more rooms are coming to West 36th Street between Fifth and Sixth avenues, with a new 188-room Hyatt Place at 52 W. 36th St., a Holiday Inn Express at 60 W. 36th St. and a proposed 17-story Ideal Hospitality project at 48 W. 36th St.

“Overbuilding has always been a negative in this industry,” said Joseph Spinnato, president and CEO of the Hotel Association of New York, which has been overseeing the industry in the city for more than 130 years.

Spinnato said that while there are some in the industry who believe the city is approaching its saturation point, he’s convinced there’s still growing room.

“When is the glass truly full? I don’t know. But right now… there are markets that haven’t fully been tapped.”

Driving the embrace of the hotel boom is the fact that, despite the growing number of rooms, the city continues to enjoy the highest occupancy rates in the nation — close to 85 percent of rooms filled last year.

Room rates also appear to be recovering following the crash, with visitors paying $261 per night on average so far in 2011, city numbers show.

Again and again analysts said they are confident that the city will be able to absorb the new rooms.

“I think there is a significant reservoir of unaccommodated demand,” said John Fox, senior vice president at PKF, a leading hotel consulting firm, who noted that part of what has made the industry so strong is that it can benefit from a weak economy.

When the dollar’s low, he noted, tourists are drawn from overseas. At the same time, Americans who may have otherwise boarded flights to London or Paris, come to New York instead.

Still, he said the room boom will likely have at least a minimal impact on existing rates.

“There likely will be a dampening down of the occupancy rate because of the openings,” he said.

Some credit the hotel boom to developers catching up on stalled projects as the economy improves.

“Things really slowed down after Lehman,” said Jordan Barowitz, director of External Affairs at the Durst Organization, who said that, while the market hasn’t improved as much as many would have liked, many new projects appear to be coming online.

“The pipeline has been moving much more slowly,” he said.

But now, “Stuff is finally going to shake loose,” he said.

Roland deMilleret, managing director of the New York office of HVS Global Hospitality Services, who specializes in the Manhattan market, said that financing essentially “disappeared” in Sept. 2008 because of the crash, with no money available in 2009 or 2010.

While several projects backed by big brands in premium locations have been lucky to secure backing this year, he says the real boom is going to hit in 2014, 2015 and 2016.

“At that time we’re going to see a huge spike in new supply,” he said, adding that, even then, supply will likely lag behind growing demand.

Mitchell Hochberg, the principal of Madden Real Estate Ventures who currently serves on the Board of Directors of Orient-Express Hotels, credited the recession for helping to “keep the lid on the market” and preventing overbuilding in recent years.

But he cautioned that, while certain sectors of the market may have lots of growing room, others may be saturated already.

There’s been relatively little growth in the luxury market, leaving room there, he said. And while there’s been a large increase in the number of “select service” hotels, like Courtyard by Marriott and Garden Inn, there appears to be growing demand.

The one space where he sees the potential for too many rooms is in the boutique sector, which has seen numerous newcomers open their doors. To stand out from the crowd, he predicted more branded hotels affiliated with national chains and special features to create buzz.

At the same time, more tourists have been flocking to the city than ever before. NYC & Company expects to hit an unprecedented 50 million tourists before January 1st — a year ahead of schedule.

Many in the industry credit the company for helping to lure new visitors to the city that had never come in large numbers before. The city, for instance, welcomed a whopping 77 percent more tourists from Brazil in 2010 than 2009, thanks to aggressive marketing and partnership efforts, said Spell.

Next year, the group is hoping to turn its focus to India and China, with plans to work with the federal government to push for visa waivers and improve the welcome process to help unlock new demand.

While some, including the author of a recent article in New York Magazine, have questioned whether the city will really be able to continue luring as many tourists in the long run as it has in recent years, Spell shunned the b-word: bubble.

“I think the very definition of a bubble is something that has artificially grown and therefore can’t sustain itself. But we’ve created new infrastructure,” she said.

“This is a change in how we do business,” she said. “It’s not going away.”

And those jumping into the industry, like Damon Pazzaglini, the chief operating officer at Durst Fetner Residential, are banking on it.

Pazzaglini has recently partnered with Ian Schrager to open a new PUBLIC New York Hotel at 855 Sixth Avenue, between West 30th and West 31st streets — marking his first foray into the hotel industry. He said that he’s confident in the city’s market and potential for growth.

“The demand is higher today than at any other point in the history of New York City,” said Pazzaglini, who said he feels safe, even if the market stalls.

“We’re so far ahead of all other markets,” he said.  “With that kind of cushion, [there's a lot] we could absorb.”

Mitchell Hochberg is very bullish on select-service lodging. The principal of Madden Real Estate Ventures sees a niche in the segment other institutional buyers may have missed. His New York City-based firm is both building new select-service hotels and buying and investing in existing properties.

“There are a lot of opportunities, particularly in secondary markets, to buy select-service properties at below replacement cost,” says Hochberg in explaining part of his firm’s strategy. “A lot of institutional money is focusing on primary markets so there is an interesting spread in cap rates as to what you can buy in the secondary market—anywhere from a 9 to 11 cap—versus similar assets in primary markets that are trading at 7 to 8 caps.”

He says many of these properties have strong cash flows but can benefit from more aggressive management to improve performance and value. “They’re typically distressed sellers, not distressed assets,” he says. “Some [of the properties] have been built in the past five years and aren’t worth what it cost to build them. We can buy these assets at below replacement cost and below peak performance, bring in a better management system and sometimes a better flag. It gives us substantial upside in the asset.”

Of course, if it were easy, everyone would be doing it, and Hochberg admits sourcing these kinds of deals is difficult and time consuming. Madden uses a shotgun approach: dealing with brokers but also mining existing relationships with banks looking to unload hotel assets on their books. Another technique is to look at larger portfolios that might contain select-service assets in secondary markets that aren’t key to the entities controlling the portfolios. The goal, he says, is finding deals before they enter the competitive marketplace. “Once a deal gets into a broker’s pretty book, we’re probably not going to be a buyer because those assets get bid up very quickly,” he says.

Of course, financing is another challenge, although Hochberg says money is more available for select-service deals than other kinds of lodging assets. One source of debt has been regional banks, but the loan-to-value requirements are typically 50% to 60%. Madden provides equity on some smaller deals, but relies on institutional partners for larger opportunities.

Madden also has an appetite for development, with Aloft projects underway in Hollywood, CA and Florida’s South Beach. Hochberg has a long track record in development, although mostly in the housing sector. He owned Spectrum Communities for nearly 30 years before selling to WCI Communities in 2005. Since then, he’s been in the hotel business, a short time as president of Ian Schrager Co. and currently as a director of Orient-Express Hotels and head of Madden.

Judging by the location of Madden’s Aloft projects, Hochberg believes select-service development opportunities are better in primary markets. In both of those cases, Madden was considering full-service or boutique-type new builds, but Hochberg says the economics are difficult to justify today. He says development costs for each of the two Alofts are between 50% and 75% of what full-service hotels would cost to build. He’s a fan of Aloft, particularly in those two locations, because of the demographics of the brand and the proximity of the two hotels to W Hotels.

“It’s an interesting opportunity to play off the Starwood reservations system with a product that is competitively price for a guest who may be looking to stay at a W but otherwise can’t afford it,” says Hochberg.

He believes the predicted tsunami of CMBS debt coming due in the next year or so will create more opportunities, but it comes with a caveat. As he notes, in the past 12 to 18 months many distressed lodging assets showed such improved performance that banks were willing the restructure the properties’ financing.

“If the market continues to stay strong, particularly in gateway cities and other primary markets, banks will continue to restructure a lot of assets,” says Hochberg. “However, there may be opportunities with some of the big pooled loans in secondary markets that haven’t recovered as fast. That’s what we’ve got our eyes on.”

New-home sales fell shy of forecasts — another break in the recent chain of better-than-expected data — but stocks are shaking it off pretty easily.

Sales “rose” 1.3% to an annualized pace of 307,000 units in October, the Commerce Department said, shy of the 312,000 economists expected.

That was up from 303,000 in September, but September’s pace was revised dramatically lower, down from 313,000 units.

“The report shows we continue to bounce along the bottom,” Mitchell Hochberg, principal at Madden Real Estate Ventures in New York, wrote in an email. “Until there’s strong economic growth and job creation there will no housing industry recovery.”

Stocks aren’t caring, focused more on their need to bounce after last week’s selloff. The Dow is up 303 points, the S&P is up 3% and the Nasdaq is up 3.4%.

Weak demand for new homes has kept prices low and forced builders to delay projects. Above, a house is under construction in Palo Alto. (Paul Sakuma, Associated Press / November 22, 2011)

Sales of new single-family homes were barely changed in October and there was little evidence of any improvement in the slumping U.S. housing market.

The U.S. government said new-home sales edged up to an annual rate of 307,000 in October, seasonally adjusted. Sales for September were revised down to 303,000 from an original reading of 313,000.

Economists polled by MarketWatch had forecast new-home sales to rise to 320,000 in October. In a healthy market, sales are typically two to three times that level.

Weak demand for new homes has kept prices low and forced builders to delay projects. The median sale price declined $1,000, to $212,300, in October and the supply of homes on the market fell slightly to 6.3 months — the lowest level in 11/2 years.

Many prospective buyers have turned to previously owned homes in search of better deals while the nation’s high 9% unemployment rate has limited the pool of potential customers despite ultra-low interest rates.

“The report shows we continue to bounce along the bottom,” said Mitchell Hochberg, principal of Madden Real Estate Ventures in New York. He said the housing industry won’t recover “until there’s strong economic growth and job creation.”

New-home sales are 8.9% higher compared with a year earlier, however. In 2010 the housing market posted its worst year of sales since the government began keeping records in the early 1960s.

Half the new homes sold were purchased in the South, but sales in that region fell 9.5% to an annual rate of 153,000 compared with a month earlier.

Sales in the West rose almost 15% to a rate of 77,000, while sales in the Midwest rose 22% to an annual rate of 55,000.

Sales in the Northeast were unchanged at a rate of 22,000.

Data for new-home sales often fluctuate sharply from month to month, and economists look at a longer time frame to gauge market trends. New-home sales averaged an annual rate of 301,000 during the three-month period of August to October, slightly more than in the same period last year.

New-home sales are counted when contracts are signed.

Bartash writes for MarketWatch.com/McClatchy.

Analysts say the modest increase on the back of reduced prices suggests the struggling housing market is years away from a turnaround.

The Commerce Department said Wednesday that sales increased 5.7 percent last month to a seasonally adjusted annual rate of 313,000 homes.

Still, sales rose after hitting a six-month low in August. And the annual pace remains less than half the 700,000 that economists say must be sold to sustain a healthy housing market.

A big reason for the gain was that the median sales price fell 3.1 percent to $204,400 — the lowest since October 2010. The number of new homes on the market was also unchanged at 163,000, a record low.

“Numbers show that while the housing market still has a pulse, it will not be back on its feet until there is significant job growth,” said Mitchell Hochberg, principal of Madden Real Estate Ventures in New York.

March through August is typically the peak buying season. But this year, Americans bought fewer new homes in that stretch than in any other six-month period on records going back to 1963.

The economy remains weak two years after the recession officially ended and the unemployment rate has been near 9 percent since then.

For many, buying a home is too big a risk, even with mortgage rates near historic lows. Others can’t qualify for loans or meet higher down payment requirements.

While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

In September, sales were uneven across the country. They increased 11.2 percent in the South and 9.7 percent in West. They fell 4.2 percent in the Northeast and 12.2 percent in the Midwest.

Builders are struggling to compete with foreclosures and short sales — when lenders accept less for a house than a mortgage is worth. Those homes are selling at an average discount of 20 percent, and they are lowering neighboring home values. That’s made many re-sales a bargain compared with new homes, creating an average 30 percent disparity in prices.

Home builders started projects in September at the fastest pace in 17 months, a hopeful sign for the economy. But most of the gain was driven by a surge in volatile apartment construction, a sign that many are choosing to rent rather than own a home.

Single-family home construction, which represents nearly 70 percent of homes built, rose only slightly. And building permits, a gauge of future construction, fell to a five-month low.

All home sales remain weak. The number of Americans who bought previously occupied homes fell in September and home sales are on pace to match last year’s dismal figures — the worst in 13 years. With three months left to go in 2011, roughly 4.91 million homes are expected to be sold this year. Economists say roughly 6 million older homes need to be sold each year to sustain a healthy housing market.

Home prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s. It took 19 years for prices to fully recover after the Depression.

Managing principal Mitchell Hochberg said the company has two deals under contract and another four that are close to being under contract. He declined to identify the hotels, because the deals have not yet closed.

Madden is looking for select-service properties that are less than five years old. Hochberg said it’s possible to buy select-service properties at capitalization rates of 10-plus based on trailing 12 months or first 12 months net operating income.

It’s possible to buy these hotels below replacement cost or below the cost of the original developer, he added.
“I see a great opportunity there,” he said. “You can finance them. … They’re off their historical highs, but they’re on their way back.”

Madden is looking to finalize between four and six deals before the end of the year. The company intends to invest between US$20 million and US$30 million of equity. The recent interruption in the capital markets caused by the debt ceiling debate has not completely dried up funding sources, he said. But to obtain financing, hotels have to be cash-flowing. Development financing remains a challenge, he added.

Loan-to-value for development projects ranges from 50% to 60% while LTV to acquire individual hotels is between 60% and 70%, Hochberg said.

“Everything’s been a little disrupted … Need to let the dust settle.”

Development projects Hochberg also provided an update on Madden’s ongoing development projects.

Madden plans to break ground on two select-service projects in six months, he said. One of the properties will be in Hollywood, California, with the other in South Beach. Each hotel will be approximately 200 rooms and the total cost of the projects is US$90 million.
“I think there’s an opportunity today in the right location to do new-build, select-service,” he said. “We’re able to build … select-service projects at
50% of the cost of a full-service boutique. We’re very much encouraged by that part of the business.”

The handshake deal was in place: Buyers were going to purchase the debt that a New York City hotel owed its lender, and the deal was supposed to close in the first quarter of 2011.

Mitchell Hochberg, Principal at Madden Real Estate Ventures, was drafting a detailed letter of intent when a funny thing happened: The economy started to improve.

“The bank decided since numbers coming back were very encouraging, they would take another shot,” he said.

No deal.

Such is the weird world of hotel financing these days. The industry can expect a roller coaster of a year, with transactions finally expected to increase but lingering fears of a “double dip” recession.

“One of the reasons there hasn’t been as much activity as people thought is the market recovered a lot faster than people thought it would,” said Hochberg, who specializes in the luxury and boutique segments. “Lenders decided to work with existing borrowers/owners than go through a protracted foreclosure procedure.”

He predicted that capital would finally get off the sidelines and into the market.

“You’re starting to see capital jump in at the end of [last] year with deals getting done,” he said. “You’re going to see a lot more activity.”

CB Richard Ellis Hotels New York City office reported this week that it closed 17 transactions totaling nearly $300 million in the second half of 2010.

Ron Danko, executive vice president, attributed the sales to improving fundamentals that finally pushed investors to spend, especially for quality assets.

“Almost overnight the market shifted and we witnessed multiple aggressive bids for assets providing meaningful pricing and certainty of transacting,” Danko said in a statement.

The group also reported that it has six assets under agreement expected to close in the first quarter of 2011.

Hochberg also predicted robust lending in 2011, with some strings attached.

“If it’s a good property in a good market, it will require more equity to get developed,” he said. “Most financiers are reticent for new development because you can buy hotels below replacement cost. To the extent someone can show there is opportunity for a specific product and a specific product that works, you will see more lending.”

Isaac Collazo, IHG’s vice president of performance strategy and planning for the Americas, pointed out positive signs in RevPAR growth, rising occupancy and increasing ADR. Still, he noted during a talk at IHG’s conference, the industry is still looking to recover ground its lost since 2007. Occupancy may continue to look soft because of the growth in supply, he said.

Most hotels that closed in the past year were unaffiliated with brands, so Collazo said investing in brands was one strategy for success.

Hochberg shared that opinion.

“Owners, investors are going to continue to be attracted to quality brands, which is obviously a critical way to differentiate a product,” he said. “Frequently it adds significantly to the distribution ability. The quality brands will still do well. It’s questionable whether new independent brands, particularly in the boutique segment, will be able to survive.”

Individual markets no doubt will play a role. Not surprisingly, gateway cities will lead the way to recovery. New York, Miami and Los Angeles have been the superstars, Hochberg said, as have Chicago, Boston and Dallas.

The weakest market, Hochberg concluded, is Las Vegas.

“It’s hard to see how Las Vegas is going to come out of this in less than five or 10 years,” he said. “The market soft before all the new supply came on. When you look at the significant supply from City Center and Cosmopolitan, it will be very difficult for Las Vegas to recover in the near term. This has also been exacerbated by companies being reluctant to do business on a grand scale.”

When it comes to rates, only the top markets — again, New York and Los Angeles — truly have pricing power, according to Peter Yesawich, chairman and CEO of Ypartnership.

His firm’s research, along with the Harrison Group, Portrait of American Travelers, showed that Americans remain cautious about spending on travel services in the year ahead.

“We think suppliers — with the exception of airlines — who attempt to meet fares and rates are going to meet resistance. For the most part there isn’t pricing power in lodging.”

The buying psychology of the traveler has changed, he said, calling the phenomenon “the new frugal.”

“Even though occupancies are increasing slightly, the consumer, because of their new frugal attitude, is resisting paying more. That will be the case across the board, whether large corporate contracts, or individual business travelers. Even though many in lodging industry believe the window is starting to open, our view is the consumer will push back on paying more.”

The good news, though, is that it appears that luxury and upscale clientele are willing to travel more this year. For households with incomes of more than 125,000 — the top 10 percent of US households — about 20 percent said they would take more trips this year, as opposed to 9 percent who said fewer. That’s a net positive of 11 percent, compared to a net positive of 2 percent of households whose annual income is $50,000.

“As a consequence of the buying power, it is the more affluent households who will lead us out of the recession,” Yesawich said. “People for the past couple of years have felt they made the appropriate sacrifice. There was clearly a trading down phenomenon, but they’re clearly ready to reinstate buying behavior.”