to see lending loosen up . “ I ’ m starting to see banks come back after being shut down to new hotels ,” he says , adding that rates have actually been coming down because more capital becomes available again .
“ Despite interest rates going up , you ’ re having compression in the risk tolerance … So , as time progresses and the industry performance picks up from the pandemic , you ’ re going to see more competition for loans and more banks opening up for lending ,” Rodriguez says .
In fact , he predicts that over the course of the next 12 months , more and more banks will return to hospitality-related lending . “ Having said that , the other part is , again , making the numbers pencil out on construction side , or on the refinancing side , or CMBS loans that are maturing . Will the numbers be good enough to be able to meet the hurdles for underwriting ? That ’ s the question mark .”
Even on the development side , Rodriguez says Driftwood is finding more opportunities , especially on deals that were already in progress , but for one reason or another “ had a hiccup .”
“ Inflation is a bigger issue for construction costs and as a result , some deals are not penciling ,” Rodriguez explains . “ We ’ re talking about 10 % increases in costs , and I ’ ve seen up to 15 % and 20 % increases . That puts a damper on construction , and people are having a tough time finding the loan or the capital to do them .”
So , again , enter Driftwood , which Rodriguez says has the wherewithal to write the check that can get the loan done or raise the money for Opportunity Zone or EB5-led hotel deals . “ There are still deals that we can find ,” Rodriguez adds . “ We are constantly underwriting a lot of deals in development . But I would also say the ones that are probably a bit more difficult at this time are new development deals .”
Driftwood acquired in September 2021 the 240-room Sheraton Old San Juan in Puerto Rico
Guest room at the recently acquired 111-room boutique Wylie Hotel in Atlanta
BULLISH ON PERFORMANCE Rodriguez ’ s optimism stems first from hotel performance on the leisure side with some hotels in the Driftwood portfolio already surpassing 2019 results and others “ getting there .”
While still challenged on the business hotel side , especially in states where COVID-related restrictions were stricter , Rodriguez says by March he was starting to see the light . “ We ’ re definitely seeing reservations picking up for group business ,” he says . “ I just finished a call with one of our general managers of a city hotel who reported record numbers for weddings with 103 already on the books for this year .”
With news like that , a very bullish
Rodriguez says , internally , Driftwood expects to surpass 2019 numbers in most of its hotels sometime next year . “ We expect the ramp-up to continue with business hotels starting to catch up with resorts , and even do a little better , sometime in 2023 , and even better in 2024 .”
That news will be music to the ears of Driftwood investors , a majority of which are looking for their distributions as soon as possible to give them cash flow .
“ Don ’ t lose faith . We ’ re back and we ’ re going to be back even stronger ,” Rodriguez concludes . “ I am very bullish on the industry . I think we ’ ll do well . And you know , this was a hiccup – a very bad hiccup , but it was just a hiccup .”
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