PUBLISHER NOTE
BUYING IN AT BETTER CAP RATES
EDITORIAL David Eisen Editor In Chief
Kathakali Nandi Editorial Writer
It ’ s been said that the only bad time to buy property is later . Despite volatility within capital markets and the attendant interest rate hikes , the maxim still holds true for those in a position to make deals : buy now when the option presents itself ; brush aside the worry .
There is no doubt that hotel transactions on aggregate have slowed after a rather heady 2022 .
Last year , according to JLL , global hotel liquidity reached $ 71.1 billion , a 2 % decline versus 2021 , and well off the almost $ 100 billion worth of hotel transactions in 2015 . Though global investment volume in dollars was down , hotel trades continued their rise , close to a record 1,800 in 2022 , showing that there is an appetite to transact , just at a lower amount .
As the cost of debt has risen , so , too , has the cost of capital , making it more difficult for deals to consummate . The Federal Reserve kept the target range for the federal funds rate at a 22-year high of 5.25 % -5.5% in its September 2023 meeting , following a 25-basis-point hike in July . Interest rates are now high compared to two or three years ago , but in the context of the last 50 years , they are running at around the long-term average . It has slowed deal volumes , nonetheless , and caused a chasm within the bid-ask spread , where owners are propping up their assets against strong cash flow , while prospective buyers are examining valuations .
The upside for buyers is that the cap rates are much better for the purchaser .
As noted in this issue ’ s JLL perspective , it ’ s the luxury segment that will continue to attract liquidity , especially as the affluent segment grows , which helps drive luxury hotel performance . Luxury hotels represented 24 % of single-asset global hotel liquidity through August 2023 , the highest portion since 2015 .
While all assets may be commercial real estate , all commercial real estate is not equal . Though U . S . commercial property valuations are down 16 % from their March 2022 peak , according to the Green Street Commercial Property Price Index , it ’ s not evenly spread out . In fact , of all commercial asset classes , lodging , according to Green Street , has held up the best with prices within 5 % of peak levels . No surprise , the office sector has fared significantly worse than average . Besides buying a hotel at healthier cap rates , I think office space is probably even a better asset class because it has been hit so hard .
If you ask me , it ’ s time to double down . Big question , where is the financing ?
Some look to alternative financing like EB-5 , USDA loans and CPACE when debt funds are too expensive and LTVs have dipped . Financing is clearly the bottleneck these days . But in terms of timing , my opinion is it ’ s time to buy commercial real estate in the next 18 months .
Ali Jahangiri
CEO
Tatiana Valenzuela Editorial Coordinator
Juan Cruz del Val Designer
Contributing Writers Harvey Chipkin , Janet Harmer , Derek Herscovici , Rayna Katz
PUBLISHING Ali Jahangiri CEO
INTERNATIONAL ADVISORY BOARD Gilda Perez-Alvarado Group Chief Strategy Officer , Accor
Arash Azarbarzin CEO , Highgate
Danny Hughes President , Americas , Hilton
Jeanelle Johnson Partner , PwC
Raj Chandnani EVP & CDO , WATG
Mike Deitemeyer President & CEO , Aimbridge Hospitality
Cindy Estis Green Co-founder & CEO , Kalibri Labs
Raúl González CEO EMEA , Barcelo Hotels & Resorts
Alan Fuerstman Founder , Chairman , CEO , Montage International
Patrick Scholes MD , Lodging and Leisure Equity Research , Truist Securities
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