n the world of aviation , whether upon taking off or on landing , the longer the runway a pilot has , the more options there are to handle challenging and even unforeseen conditions and make the necessary adjustments for a smooth transition .

Similar considerations apply to the hotel industry . Many of the loan maturity challenges the industry now faces are not entirely unfamiliar . However , the Carter-era inflation of the 1970s , spiked by the oil crisis , and the more recent 2007-2008 recession are , for the most part , fixed in our rearview mirrors .

The hotel industry operated

in a low-interest-rate environment for a decade and a half : markets were stable ; debt was relatively cheap . Quarter-after-quarter RevPAR gains were consistent and gross operating profit similarly dependable . As a result , it was relatively easy to consummate deals : new development , investment sales , refinancings and more . Moreover , even during the pandemic , most lenders cooperated with owners to keep properties solvent , understanding the unprecedented circumstances .

Today , it ’ s a different environment : persistent inflation prompted the Federal Reserve

to maintain high interest rates , which is impacting operating costs ( insurance , utilities , taxing authorities , basic supplies , etc .), as well as the availability and cost of capital . In the wake of the pandemic , labor — both in availability and wages — has also been flexing its muscle , further vexing operations . At the same time , a wide range of hospitality loans will mature in the next year or two . Three questions now burn hotel owners ’ ears : How long of a runway is there before considering a refinance ? How much runway is available before considering a sale ? What are the best possible exit strategies ?

PERFORMANCE PARAMETERS Five years ago , starting to seriously analyze prospects for a sale or refinance six to nine months in advance was more than doable . Today , we recommend a much longer view given the current rate environment , availability and cost of capital and the undeniable impact that higher interest rates are having on valuations . It is now advised to begin evaluating your options 12 to 18 months in advance of loan maturity , even as the industry as a whole continues to perform well . In fact , according to a recent Daily Lodging

40 hotelsmag . com Jan / Feb 2024