HOTELS ' InVESTmEnT OuTLOOk
HOTELS ' InVESTmEnT OuTLOOk
suggests that the stage is being set for debt workout activity .”
U . S . bUy SidE Given their cashed-up status , big players will have their choice of deals . But with former A-list contenders such as Blackstone and Colony opting to or having to sell CMBS-related portfolios , a new competitive landscape is being shaped by investor goals . It ’ s impacting who ’ s shopping and what ’ s on their shopping lists .
Art Adler , president , Adler Hotel Advisors , New York , also foresees more mergers among private management companies . With fee income down 75 % in some cases , more operators “ could come together to cut overhead as recovery starts ,” he says . Take-private deals are recessionary staples but , as he points out ,
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“ The asking price for individual assets has not changed materially since owners are still focused on pre-COVID-19 values . The bid / ask gap is too wide .”
– John Pritzker
“ Those types of deals are usually done with debt financing , and debt financing for hotels is hard to find .”
Private equity and institutional investors also are eyeing existing operating platforms , especially those “ that may be struggling now but [ have ] a reasonable footprint of complementary assets ,” Crandell says . He acknowledges that “ hot ” is a relative term in today ’ s market . In his view , the most desirable properties “ might be those with a highly efficient labor model , limited guest services , are relatively new with limited capital requirements and , perhaps , located in a suburban and / or densely populated area . Oh , and you have to be able to drive there . So , you ’ re looking at a first-to-recover asset portfolio — which will be few and far between .”
Pritzker calls the buy side this way :
“ Hot ” property types are centered on imminent financing situations ( i . e ., owners that have looming debt maturities or that may not be able to continue to provide additional capital to hold on to their properties through short-tomedium term closures ),” he says .
Some upscale hotels that are already stressed could prove to be big bargains as investors sidestep them amid gloomy predictions on business travel recovery . Homi Vazifdar , managing director , Canyon Equity , Larkspur , California , sees acquisition opportunities at both ends of the spectrum : drive-to selectservice and unique , ultra-luxury properties in remote locations .
HREC ’ s Cahill predicts heightened interest in extended-stay portfolios . That ’ s true for pure plays . STR reports extended-stay properties posted an almost 20 % occupancy premium over the industry as a whole throughout the pandemic .
Consolidation also will be a driver . Crandell forecasts further consolidation among brands and franchisors and thirdparty operating platforms .
REITs may also be ripe for some deal activity . As Vazifdar points out , REITs “ have been decimated ,” losing more than 50 % of their market cap . The “ smart ones ” reconfigured their capital stack , negotiated admirably with lenders and tightened their belts . “ They ’ ll ride out the storm ,” he says .
The ones with “ weak management and historically erratic strategies ” are scrambling , Vazifdar adds . If they ’ re lucky , they can flip assets to boost their balance sheets . If not , they ’ re prey for larger private equity houses that want to reel in portfolios trading at huge discounts to net asset values .
Who else will be on the buy side for hotel deals ? Cashed-up private equity tops the list . Institutions are in the hunt . Foreign investment is a big question due to the strength of the dollar and other considerations .
www . hotelsmag . com • HOTELS ’ Investment Outlook • November / December 2020
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