public economic development incentives . Once built , barriers to entry for potential competitors are substantial . Historically , these properties have been darlings among institutional investors and lenders .
Regardless , we witness time and again how these properties can fall out of favor and experience wild swings in asset valuations during times of high stress in the economy or capital markets . No time like the present .
RISK / OPPORTUNITY However , these properties are not now without near and longer-term risks . Near term , profitable lodging demand has yet to return in the larger meeting and group segment for which urban big box hotels are designed . Longer term , there are existential concerns over how much video conferencing might permanently replace “ in person ” business meetings and conventions , as well as inflationary cost concerns for most every operating line item , ranging from labor and capital expenditure expenses to insurance and property taxes .
These considerations add to the volatility in net cash flow from hotel operations and risk of default at stressful times like the present . However , the seesaw nature of the daily occupancy rates and the continual re-pricing of rooms inherent to hospitality means that even a few bookings of large meetings and group events can result in a dramatic increase in operating revenue , profitability , and asset value .
Couple this with cyclical booms and busts of liquidity in the debt and equity capital markets that can result in both a virtuous cycle of value creation during good times ( simultaneously improving NOI , financing terms and compressing cap rates ) and a vicious cycle of value destruction during bad times ( simultaneously worsening NOI , financing terms and widening cap rates ). These natural trough-to-
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