INVESTMENT
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 .
– STEPHEN O ’ CONNOR
peak swings in liquidity for hotel investments in capital markets are further amplified for big box properties , given their complex operating characteristics .
GO FOR IT We have seen numerous occasions in past economic cycles where large , big box hotels trade on a “ price per pound ” basis as values are bottoming out and a sophisticated operating partner with opportunistic private equity behind them comes in to execute a renovation , often coupled with a change in brand and management . Then , in a recovering market , the cash flows ramp up dramatically and the investor can recoup their capital in a cash out refinancing or exit the investment altogether with the property valued at an attractive cap rate .
Given the risks in this class , markets with potentially large upside for big box assets include cities with broad tourism attraction to complement business travel like Nashville , Las Vegas , New York , Orlando , San Diego or New Orleans ; major airline hub cities that allow corporations to easily gather staff from multiple locations like Chicago , Dallas , Atlanta or Los Angeles ; primary and secondary markets attractive to large state associations like Boston , New York , California , Texas , Illinois or Florida ; and cities with well-funded , award-winning Convention and Tourism Bureaus like Louisville , Raleigh , Las Vegas , Salt Lake City or Denver . Take your pick .
Overall , we believe it ’ s hard to bet against properties that have such outstanding commercial , entertainment and tourist locations in major U . S . cities ; or that pent-up human demand to gather and meet in person won ’ t re-assert itself .
So , to the extent that urban big box hotels go “ on sale ” at material discounts to pre-COVID valuations during this next phase of the cycle , well-capitalized investors with a sufficiently long-term investment horizon stand to realize outstanding returns on investment .
History very well could repeat – or at least rhyme .
58 hotelsmag . com July / August 2022