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Starwood's announced sale of two Ws highlight the impact of deferred capex on valuations.

On April 13th, Starwood announced that it had reached an agreement to sell W Tuscany and W Court in Manhattan to St. Giles Hotels LLC.  Unlike past sales, Starwood will not be maintaining management contracts on these two assets.  As of midnight tonight both hotels will exit the Starwood system.

The hotels sold for $78MM which with 318 rooms combined implies a per key price of $245k – a rather low number given the location of the assets.  However, part of the reason for the “low” price per key is the fact that these hotels have a lot of deferred capex – which is true for the vast majority of ‘distressed’ assets that are already up for sale or will come to market over the next few years.   When you couple that with lower loan-to-values in the 50-55% range, unavailability of CMBS financing, higher interest rates, desire of banks to reduce exposure to lodging, and depressed NOI’s we believe that we may not see the same types of valuations that were seen in 2007 for a very long time (and yes that’s more than 3 years).