flourish and the group sector burgeons , there will be a lender ready to do business with a qualified sponsor . The main issue lenders are grappling with nowadays is debt pricing .
HOTELS : Where does LTV stand in the wake of COVID , et al .? AK : It ’ s a mixed bag . Assets in markets such as Florida have seen material value enhancement while assets in Chicago and New York continue to struggle to get their lost values back . Assets in pockets of Los Angeles and San Diego , for instance , are beginning to surpass 2019 values . In general , we will likely not see the values drop to the same level as the GFC , but instead will see a 10 % to 15 % value adjustment , which , in light of the state of debt markets and demand recovery , is very reasonable . Clearly , there are outliers ; certain assets were badly impaired and will trade for material discount ( 20 % -40 %) to 2019 pricing . However , those will likely be rare and highly competitive . We will also see assets that have reached their utility obsolescence and must seek alternative use . However , the above presumes that we see no major recession and that the Fed achieves a semi-soft landing .
Afshin Kateb , CFO and head of hospitality investments , Palladius
cannot support the outstanding debt and their trailing NOI will make them ineligible for a refinance under current constrained debt environment and terms .
H : What segments are most appealing to investors ? AK : Select-service and limited-service hotels will remain industry darlings because of their operating cost model and operational efficiency . Interestingly , the extended-stay and limited-service segments have much fewer maturities than full-service hotels , so for investors searching for dislocation , the full-service sector appears to be the biggest target . However , I should qualify that not all markets have been able to recover their COVID demand losses . In the case of the still-recovering markets , all segments may see diminished value and refinancing difficulties , which means opportunity and appeal for some bargain hunters .
H : What does the lending picture look like vis-à-vis acquisitions and ground-up ? AK : Our debt fund is very well positioned to offer targeted ground-up , acquisition and existing debt refinancing at a fixed rate . Our underwriting looks at a range of quantitative and qualitative criteria , taking into account the sponsor experience as well as market performance and management quality . So long as the demand continues to grow , business travel green shoots continue to
H : Where are cap rates headed in major urban markets ? AK : Resort and select destination markets , such as San Diego and Orange County , continue to lead in recovery , compared to 2019 levels . Assuming leisure demand continues its growth trajectory , these markets should maintain their recovery lead . For urban markets , we ’ re seeing a dichotomous story of “ haves ” and “ havenots .” In some urban markets , such as New York , Boston and Atlanta , the impact from the pandemic has proven ephemeral , as these markets have seen accelerated demand and relatively rapid recovery . However , their ability to completely recover back to 2019 levels will continue to depend on a combination of office visitation , citywide conventions and events and continuation of leisure demand . On the other hand , for other urban markets , such as such as Chicago , Minneapolis and Philadelphia , COVID ’ s impact is proving more permanent due to a lag across all demand segments . Accordingly , we should expect to see a bigger value deterioration and rate cap expansion of possibly 100 to 150 points in these stillrecovering markets .
H : What ’ s your overall outlook ? AK : We are optimistic about the future of the industry . No other sector , not even multifamily , saw such a devastating blow to its core but showed such immense resiliency . Hospitality has made a remarkable comeback ; many markets are continuing on their recovery journey to the top . People want to travel , people want to meet face to face in groups to exchange ideas and people want to do business and close deals in person . Hotels are hubs for all such activities .
May 2023 hotelsmag . com 47