LODGING CONFERENCE
TO SELL OR NOT TO SELL ?
Talk to your lender , consult a broker .
By DAVID EISEN
B
eyond the human toll , the pandemic made a mess of things for real estate .
Inflation , which typically increases coming out of downturns as demand outpaces supply , was exacerbated by the impact of COVID-19 . In fact , the U . S . was experiencing a period of low inflation prior to 2020 , but COVID created various market problems , causing prices for goods and services to rise .
It is the job of the Federal Reserve to tame inflation and try it has . The Fed lowers interest rates in order to stimulate economic growth , as lower financing costs encourage borrowing and investing . When there is too much growth , the Fed can elect to raise interest rates in order to slow inflation and return growth to more sustainable levels .
That ’ s exactly the path it ’ s been on , rather to the dismay of those in real estate , who are in the business of building , buying and selling assets .
Investors were used to the so-called “ free money ,” or the near-zero interest rates from the latter half of 2008 through 2019 , that any change spooked them . Lest we forget , the federal funds rate reached a high of nearly 20 % in 1980 and 1981 to counter inflation . Since March 2022 , the Fed has increased its federal funds rate 11 times , now to a range of 5.25 % to 5.5 %, where it decided to keep it as of a September 20 decision and signaled they would stay higher for longer . “ There is a realization that the cost of debt isn ’ t coming down in the near future , maybe not until the second half of 2024 or even beginning of 2025 ,” said Evan Weiss , COO & principal of LW Hospitality Advisors .
For hotel investors , rollicking interest rates have made it harder to get deals done . It hasn ’ t killed everything off but made communication amongst interested parties that much more imperative .
“ High interest rates are a function of COVID ,” said Navin Dimond , founder and CEO of Stonebridge Companies , during a panel at The Lodging Conference , at the JW Marriott Phoenix Desert Ridge . It ’ s even more daunting for those holding variable rate loans . Dimond ’ s best advice : “ Go to your lender , have a conversation and do it early .”
Added fellow panelist Chris Green ,
10 hotelsmag . com October 2023