SIGNIFICANT POSITION IN LIKE-MINDED FIRST HOSPITALITY GIVES NEW PLATFORM A BROADER SKILL SET , MORE ACCESS TO OPPORTUNITIES .
Contributed by CHELSEY LEFFET , HVS , WASHINGTON , D . C .
purchase of Condor Hospitality Trust ( US $ 305 million for 15 hotels in Q4 2021 ), and Highgate and Cerberus Capital Management ’ s acquisition of CorePoint Lodging ( US $ 1.5-billion transaction expected to close in Q1 2022 ), as well as the announcement that Pyramid Hotel Group and Benchmark Global Hospitality are merging to become Benchmark Pyramid ( combined 210 hotels ).
An increase in individual- and portfolio-asset acquisitions is represented in the space , as well . Take , for example , the reports of Peachtree Hotel Group acquiring over US $ 1 billion in assets since mid-year 2020 , Flynn Properties & Värde Partners buying 20 hotel assets for US $ 211 million from REIT Apple Hospitality mid-year 2021 , and Summit Hotel Properties acquiring a 27-hotel portfolio from NewcrestImage for US $ 822 million in late 2021 . Individual hotel transactions , as well as portfolio transactions and other M & A transfers , are expected to remain robust through the next few quarters , especially as defaults and foreclosures rise in numbers . Lenders , owners , and investors all monitor several metrics closely , particularly interest rates at this point in the cycle .
At the forefront of the current lending environment is the transition from the interest rate index LIBOR ( London Inter-Bank Offered Rate ) to SOFR ( Secured Overnight Finance Rate ). As of December 31 , 2021 , LIBOR , which is reportedly referenced throughout several trillion dollars of corporate loans , floating-rate mortgages , floating rate notes , and securitized products , will no longer be part of any new U . S . loans and will cease publication completely by July 2023 . SOFR is a fully transaction-based , nearly riskfree reference rate , and while it can be more volatile than term rates on a day-to-day basis , any contracts referencing SOFR are based on an average of SOFR , which has historically been less volatile than LIBOR averages . As new loans are processed , and as existing loans are reconfigured , additional credit spread is anticipated to be added to SOFR to make it comparable to LIBOR rates .
Interest rates continue to remain significantly low and appealing to investors . It follows that any increase in interest rates would in turn raise the cost of borrowing and , thus , affect the appeal of M & A deals , where a large portion is financed by loans . However , due to the significant amount of capital in the market currently ready and willing to be deployed , it is likely that an investor could conceivably initiate and close a deal despite the potential of rising interest rates .
Regardless , the hotel industry is one that is very appealing to many domestic and international investors given the anticipated growth and potential for returns . Going forward , M & As will continue to be an excellent way to either enter the industry or grow economies of scale , reaping the return that many hotel assets and companies already possess .
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