HUNTER CONFERENCE |
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THE REALITY IS THAT BRANDS ARE SPEAKING FROM BOTH SIDES OF THEIR MOUTH . GET RID OF THOSE ASSETS FROM THE SYSTEM IF NO PIP ? |
– SHAI ZELERING , MANAGING
PARTNER OF REAL ESTATE ,
BROOKFIELD , SPEAKING ON THE
DUALITY OF BRANDS NEEDING
UNITS TO SHOW GROWTH WHILE
AT THE SAME THREATENING TO
JETTISON HOTELS THAT DON ’ T
MEET BRAND STANDARDS .
“ A lot of owners later in their career are passing [ assets ] down or exiting the business altogether ,” he said . “ They have no more cycles left , so there will be an uptick in opportunities .”
In January , Noble closed on a $ 1-billion fund focused on value-added investments in select-service and extendedstay hotels across the U . S . Shah also said that the firm has been buying up tranches of CMBS debt .
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Blackstone peer Brookfield has been waiting in the wings , too , said its managing partner of real estate , Shai Zelering . “ It ’ s a good time to be patient ,” he said . One of its most notable deals was its sale of a WoodSpring Suites portfolio to Blackstone and Starwood Capital , netting it $ 1.5 billion in profit . But that was in early 2022 . Zelering said that Brookfield will be a net seller and net buyer in 2024 , telling the audience that it would sell $ 1.5 billion of real estate and buy an equal amount “ toward the end of the year .” He said now is the time to look out for deals as replacement costs trend up .
But Zelering is skeptical of the brands and their daring words around PIPs . He referred to it as a game of chicken : Who will blink first ? “ The reality is that brands are speaking from both sides of their mouth ,” he said . “ Get rid of those assets from the system if no PIP ?”
The reality is that the brands need the units and the pandemic ’ s hangover mixed with tougher credit markets have all but depleted some FF & E reserves , Zelering said , allowing that it could , like Shah and Trebilco said , spur deals . “ There are transactions driven by the condition of the asset and debt levels ,” he said .
An oftentimes perceived misalignment between brands and owners is often a thorny , if not unresolved issue . “ We are focused on return on capital and brands aren ’ t ,” Trebilco said . In today ’ s asset-light , franchised-focused approach ,
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brands are interested in growing net unit growth — it ’ s how they are judged by shareholders and how they grow their share price . And it ’ s why there are so many new brands that flood the market . “ Brands are more empowered today ,” Trebilco said , pointing to the wide chasm between hotel C-corp stock prices and real estate investment trusts .
The relationship between brands and owners is one of necessity and of convenience . Lenders like hotels are attached to a brand and it makes obtaining a loan easier . At the same time , owners need brands for their distribution systems
A LOT OF OWNERS LATER IN THEIR CAREER ARE PASSING [ ASSETS ] DOWN OR EXITING THE BUSINESS ALTOGETHER
– MIT SHAH , FOUNDER AND CEO ,
NOBLE INVESTMENT GROUP
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and , moreover , their loyalty programs , where members number the millions and deliver guests at a lower cost of customer acquisition .
Zelering is blunt when it comes to loyalty programs , referring to them as credit cards and merely a way to rack up points , which , actually , dilutes the value of brands .
Hotel companies are now mutating into travel companies , argued Blackstone ’ s Trebilco , an opinion that some hotel companies might not push back on . Hilton ’ s partnership with AutoCamp , which Trebilco called a Bonvoy creation without the PIPs , and Marriott ’ s partnership with MGM Resorts count as examples . “ It ’ s a travel ecosystem . Not a hotel business .”
Noble ’ s Shah views it similarly , but doesn ’ t see it necessarily as a bad thing . “ They want to provide experiences for their guests on every step of the journey ,” he said , alluding to The Ritz- Carlton Yacht Collection , which launched its first voyage two years ago , and is adding two more ships . Other hotel companies , including Four Seasons and Aman , have followed suit .
Shah called it a “ metamorphosis ,” invoking Blackstone ’ s President & COO Jon Gray , who “ will say we are investing in the travel business .”
“ Institutional and private equity are looking afield ,” he said . “ Human interaction is how we create joy . How does that live as we move forward ?”
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26 hotelsmag . com May / June 2024 |