president of Remington Hospitality , “ We lived in the 0 % era . It ’ s hard to get our heads around doing deals at 8 %— 6.5 % is the new 0 .”
PRESSURE COOKER The duress is on asset owners and , in turn , puts added pressure on hotel operators . Cash flow is king , and as margins have eroded , it ’ s made it more difficult to turn a profit , which can be one impetus to sell a hotel . “ We have a number of assets in this situation ,” said Green , citing inflationadjusted RevPAR that is flat to 2019 and the palpable increase in labor costs and below GOP expenses , such as insurance . “ There is pressure on the ownership side ,” he said .
Green went on to add that he is starting to see distressed deals , something many thought would happen in the earlier days of COVID , but which never came to full fruition . “ It ’ s a thin market for getting deals done ,” Green said .
According to Rod Clough , president of
HVS Americas , the deals getting done are those in the limited- and select-service spaces and those hotels that are past their property-improvement plans ( PIPs ) with fewer expense challenges .
Twenty-five percent of global hotel deals are being done by first timers , noted Thom Geshay , CEO & president of Davidson Hospitality Group . “ Transactions are down ,” he said , which , he added , has allowed Davidson to dig in on the fundamentals of its business and optimizing operations .
According to JLL Research Hotels & Hospitality , total global hotel transaction volume in the first half of 2023 was down 46.1 % from 2022 to $ 20.6 billion and down 41.8 % from 2019 . In New York , total transaction volume was $ 1 billion , down 27 % from 2022 and 26 % from 2019 .
In its report , JLL wrote that “ While ongoing macroeconomic volatility has suppressed short-term hotel investment volume , fundamental performance continues to accelerate . This , combined with a substantial amount of impending debt maturity on the horizon , significant dry powder on-hand , rising CapEx needs and nearly $ 19 billion in closed-end funds reaching the exit state of their investment lifespan over the next four years should catalyze hotel investment opportunities . Buyers who are well capitalized and less reliant on leverage will have an advantage .”
Kevin Davis is Americas CEO , JLL Hotels & Hospitality Group . He is convinced that the velocity of deals will pick up through the end of this year , spilling into next . He earnestly ticked off the reasons why : the weight of 9 % to 10 % cost of debt ; impending debt maturities that may involve or require equity contribution ; a realization that assets are worth less than the debt ; softening of performance in some markets and some assets .
“ If you bought an asset with the assumption that the cost of debt was 4 % to 5 % and now it ’ s 9 % to 10 %, that ’ s a heavy burden on the IRR math ,” Davis said .
Hotel owners and operators discuss challenges and opportunities during a panel session at The Lodging Conference . From left : moderator Mitch Patel , president and CEO , Vision Hospitality Group ; Navin C . Dimond , founder and CEO , Stonebridge Companies ; Greg Kennealey , CEO , Mission Hill Hospitality , a KSL Company ; Chris Green , president , Remington Hospitality ; Thomas M . Geshay , CEO & president , Davidson Hospitality Group .
October 2023 hotelsmag . com 11