Q & A
PALLADIUS CFO IS ALL IN ON HOSPITALITY . Here ' s why .
By DAVID EISEN , EDITOR IN CHIEF
Austin-based real estate investment manager Palladius has its hands in a lot of different commercial real estate verticals , from student housing to multifamily residential . As it stands , Palladius manages and operates approximately $ 600 million of real estate across the U . S . Hospitality investment has also always been a focus for the company , a vertical that was part of the overall strategic plan , Afshin Kateb , CFO and head of hospitality investments told HOTELS , further stating that timing has been an issue ; namely , COVID . “ At the outset , everyone thought there was going to be this surfeit of products hitting the market ,” he said , noting that no other asset class has been as hit hard as hotels . In this Q & A , Kateb discusses the current macroeconomic environment and its impact on hotel transactions , the lending environment and why hotels , even in the face of threats , show more resiliency than any other asset class .
HOTELS : How has the current macroeconomic picture impacted hotel transactions and development ? Afshin Kateb : On the transaction front , a continued rise in inflationary indicators coupled with the Fed ’ s response to them has put material upward pressure on rates and impacted buyers ’ ability to find optimally sized and priced financing . Additionally , the lender rate cap purchase requirement has laid yet another layer of pricing complexity on an already expensive debt market , which means that both lenders and borrowers have become very cautious and selective . There was also a general expectation that there will be a surfeit of impaired hotels hitting the market during COVID , but that expectation never materialized . The to-date bid-ask gap between the borrower and seller continues to hold . However , the borrower ’ s inability to hit the required lender going-in debt yield may force some borrowers to rethink their position and reverse course .
On the development and construction front , the steep rise in material costs , shortage of labor and heightened cost of debt have resulted in a perfect storm , creating an interim lender apathy and selectiveness toward hotels . A positive impact of this trend is a reduction in supply pipeline , thus enabling existing hotels to benefit from the continued demand growth and regain values .
H : Do you expect transaction volumes to be higher or lower than 2022 ? AK : We believe transaction volume will pick up , primarily because the rising cost of debt leaves borrowers with maturing debt with few options but to transact . By the end of 2023 , approximately 40,000 CMBS hotel loans totaling $ 30 billion will be maturing . This maturity is further ballooned by bank and debt fund loans , thus adding additional pressure to an already tight debt market . This transaction volume will come from properties with maturing debt with inherit valuation issues whereby their current valuation
46 hotelsmag . com May 2023