This week's announcement of a new company to hoover up distressed assets yet again calls into question just how many assets will ultimately end up coming to market.
Akkeron Hotels' Marten Foxon is smart enough to admit that while the group is hoping to create a 150-strong portfolio there is no guarantee this will happen in the near term.
Akkeron was set up last year by James Brent, a former head of real estate and lodging at Citigroup. Using his own cash and that of co-investor Colin Johnston they have put together a deal to take on the leases of eight hotels that were the core of former chain Folio.
Johnston owns four of the properties with the others held by institutions and high net worth individuals. All owners have agreed to new lease terms that mean Folio can be a viable management company.
During its previous incarnation it had signed-up to unrealistic rents that proved unsustainable during the downturn. While these high rents were the key reason the deals could be struck in the first place to forge the previous Folio, it was an unsustainable business model.
The new Folio wants to take on a blend of ownership, leases and management contracts. For outright acquisitions it has lined up a network of HNWIs and family offices with institutions promising to step in for the largest opportunities.
The group is provincial UK focused but is prepared to take on assets ranging from independent upscale hotels to budget properties run under a franchise.
Where appropriate it will use the Folio brand but all hotels will be run under the unified management platform headed by Matthew Welbourn, md; Alan Murray, fd; and Nick Greaves, sales and marketing.
Foxon, who is Akkeron's head of hotels and leisure, said that there were potentially two crystallisation events on the horizon that might start deal flow. Firstly, debt maturity dates, forcing both banks and borrowers to confront their problems. And secondly, tougher trading in the first quarter of next year might finally tip some hotels over the edge.
He anticipates being able to work with existing lenders if they have foreclosed with Akkeron stepping in to recapitalise with fresh equity. The preference would be to seek covenant light deals.
HA Perspective: Foxon is right to be cautious about the prospects for deal flow. So far, banks have been unwilling to crystallise losses, preferring to roll-up defaulted interest payments instead.
But commercial property is a long way from making it out of the woods of recession. HSBC this week suggested that a double-dip correction was likely for the UK, driven by an estimated £155bn of bank debt and £16bn of CMBS maturing between now and 2013.
The research estimated that there is £47bn of negative equity across UK commercial property loans, equivalent to about 8% of investable stock. About £20bn of the bank negative equity is in the hands of RBS and Lloyds.
Even worse, to reduce LTVs to 65% a whopping £132bn is needed. HSBC reckons that next year the trickle of bank de-leveraging will turn into a flood and they anticipate increased action on non-performing loans.
That said, HSBC also anticipates fewer fire sales compared to the 1990s thanks to lower interest rates and fewer corporate insolvencies.