Faculty & Research
Private Equity Investment in Public Hotel Companies: Recent Past, Long-Term Future
Vol 8 No 10
By: John B. Corgel Ph.D.
Executive Summary: Privatization of publicly traded companies arguably represents one of the most important trends in North American business during this decade. The sweep of private equity (PE) through the hotel and other industries was dramatic, until the 2007 credit crisis slammed on the brakes. Because these transactions are leveraged buyouts (LBOs), the reduced availability of debt capital stemming from recent problems in the credit markets appears to be responsible for the disappearance of PE deals. Notwithstanding those matters, conditions unrelated to debt financing sparked the PE surge during the early 2000s. As detailed in this report, these conditions are property market liquidity, real estate investment trust (REIT) shares trading at deep discounts to net asset values (NAVs), high regulatory costs for public companies, public company incentive problems, and factors specific to real estate ownership companies that make them poorly suited for public trading. The same conditions could motivate another wave of public-to-private transactions when debt for large-scale transactions again becomes available. A principal source of this funding is found in pension accounts. Despite problems in the credit markets and the U.S. economic slowdown, money continues to flow into the pension accounts from a record number of workers. Fund managers must invest this capital somewhere! Forecasting how much will flow to finance PE-led LBOs during the coming years, particularly hotel company LBOs, requires consideration of a variety of underlying economic, financial, and regulatory conditions.
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- Private Equity Investment in Public Hotel Companies: Recent Past, Long-Term Future By: John B. Corgel Ph.D.
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About John B. Corgel Ph.D.
Jack Corgel holds the Robert C. Baker Chair of Real Estate and is a full professor at the School of Hotel Administration. He served as the first director of the school’s Center for Hospitality Research from 1992-1994. After receiving undergraduate and PhD degrees from the University of Georgia in real estate and corporate finance, he taught at the University of Florida, Georgia State University, and the University of Connecticut. During the academic year 1985-1986, he was a visiting scholar at the Federal Home Loan Bank Board in Washington, DC. He is a fellow of the Homer Hoyt Institute. Corgel also maintains a consulting relationship with PKF Hospitality Research where he is helping to develop new products for the hotel industry based on property-level financial performance information. Corgel has published over 65 articles in academic and professional journals, mainly on the subjects of real estate finance, investment, valuation, and hospitality real estate. He has published in the most prestigious journals in real estate (Real Estate Economics), urban economics (Journal of Urban Economics), insurance (Journal of Risk and Insurance), business law (Journal of the American Business Law Association), and Hospitality Management (Cornell Hotel and Restaurant Administration Quarterly and International Journal of Hospitality Management). In addition, he has written for nearly every national journal read by real estate professionals. His textbook, "Real Estate Perspectives" (with Smith and Ling) was used throughout the nation for introductory real estate courses.
For more information visit http://www.hotelschool.cornell.edu/research/facultybios/faculty.html?id=114
