Access and Cost of Capital Property prices are also affected by the availability and cost of acquisition capital. Also a key factor driving the market are underwriting standards. As the distinction between real estate commodity and complex operational and marketing business blurs, we should be careful lest we lose sight of what drives value in hotel property - it's clearly the customers. One anecdote heard in the halls of hotel banking quite recently had the banker calling the appraiser to raise the value because they really wanted to make the loan. For lenders using securitization as an exit into the public market, the standards in theory remain rigorous with rating agencies riding herd on loose underwriting.
Public companies remain conservatively leveraged from a balance sheet perspective.
As property prices and the debt to pay for them continue to rise in a period when cash flows begin to stabilize, however, debt service coverage ratios will inevitably narrow, producing higher levels of risk. How main-line lenders will react to this reality is yet to be seen. On the private side, however, some lenders are again looking at 110 to 90 percent leverage, providing little room for error. Some may also be realizing that there are attractive acquisition opportunities closer to home where the real estate crunch looks like a repeat performance of the earlier U.S. experience. Witness Thailand, Indonesia, Malaysia, France and Germany.