HOTELS ’ InvESTmEnT OuTLOOk
2020 will be a deal desert
Watch for some green shoots next year as capital gets restless . Just don ’ t expect a bumper crop of transactions until 2023 or beyond .
Contributed by Mary Scoviak
Cash-rich vultures are already circling the world ’ s post-COVID-19 hotel industry , and they ’ re hungry . But they ’ re waiting until the dust settles to identify the best targets — and there ’ s little competition . “ Whoever has cash in hand can go out and make a killing ,” says Martin Smura , CEO , Kempinski Hotels , Geneva .
Don ’ t look for a feeding frenzy soon . “ Nothing ’ s trading in the United States now ,” says Michael Bellasario , director , equity research senior analyst , R . W . Baird . In his view , there ’ s stress but not much distress as lenders and hoteliers work feverishly on debt restructuring and forbearance to keep viable assets off the block , along with uncertainty about the timing of recovery . “ Would you want to buy a hotel that might not have income for six months ?” he asks .
Government support in continental Europe will increase near-term survival rates . Still , in April , Cushman & Wakefield reported that , while 51 % of hotel investors “ had everything on hold ” due to internal decisions or restricted access to financing ,
41 % were continuing with well-advanced deals or seeking distressed assets .
China could be ahead of the curve , as it was with occupancy recovery . While the number of deals was “ muted ” in the first half of 2020 , “ we expect hotel transaction activities to resume towards the end of the year as private equity and institutional investors still have pressure to deploy capital ,” says Ling Wei Tan , vice president , investment , hotels and hospitality group , JLL Greater China , in his recent transaction report ; also , several large hotel deals are on track to be completed this year .
In the U . S ., Trepp LLC reports roughly 3,000 CMBS loans are backed by hotel mortgages worth more than U $ 86 billion in remaining debt . By mid-April , three CMBS hotel loan portfolios that include 186 properties and a US $ 2 billion outstanding balance were put into “ special servicing .” If there ’ s no workout , that could put some strong brands in appealing sectors ( such as extended stay ) closer to the block .
Jon Bortz , chairman , president and
CEO , Pebblebrook Hotel Trust , Bethesda , Maryland , foresees some “ huge ” portfolios of select-service properties coming to market alongside overleveraged assets . What about convention hotels ? “ Those big boxes are owned by large institutional investors who have big money . They will get to the other side ,” Bortz says . “ Small owners have less flexibility . Hotels need constant capital infusions to be maintained , and some of the smaller owners won ’ t have it to reinvest . When their hotels reopen , they ’ ll lose share [ to renovated properties ] and have to lower their pricing . That will lead to a lot of distress and a lot of turnover . But I think it will be another year before the folks who have capital take advantage of those opportunities .”
It will be at least early 2021 before potential buyers get a clear picture of what ’ s coming to market . “ Banks don ’ t want to own or sell , so they ’ re working with hotel owners to find ways to prevent that ,” says C . Patrick Sholes , managing director , Lodging , Leisure and Gaming Equity Research , SunTrust Robinson Humphrey .
Hotels need constant capital infusions to be maintained , and some of tHe smaller owners won ’ t Have it to reinvest . wHen tHeir Hotels reopen , tHey ’ ll lose sHare [ to renovated properties ] and Have to lower tHeir pricing . tHat will lead to a lot of distress and a lot of turnover .
Jon bortz
20 hotelsmag . com June 2020