DEVELOPMENT
that is highly dependent on business travel , which has still yet to return , and beset by a host of other problems from crime to homelessness .
On the other side of the country , the owner of the Margaritaville Resort Times Square filed for bankruptcy to try and stave off foreclosure . The owner , Soho Properties , cited difficulties related to the COVID-19 pandemic . The hotel opened in June 2021 .
Future interest rate cuts could come to fruition as the markets calm , giving borrowers the lifeline they need . Still , the future remains murky at best and a sale of the asset can be the best choice toward repaying outstanding debt and alleviating stress .
NEW LIFE As asset owners decide their course of action , various entities wait in the wings . An article published earlier this by HVS suggested that there could be a slew of hotels , especially in the economy segment , sold and ripe for residential conversion . “ As economy and budget hotels are nearing the end of their economic life , some properties are finding new capital for renovations from buyers seeking to convert properties to residential use ,” wrote HVS ' Rod Clough and Koby Kearney . “ The upside of a residential conversion can be significant ,
The pool at Hermitage Studios .
particularly for a budget hotel operating at a below-market occupancy and average room rate whose owner is paying a significant portion of the limited rooms revenue to maintain a brand affiliation that is not providing much benefit . Not only could a struggling lodging property transition to a much higher occupancy with residential use , but the buyer could also eliminate significant brand affiliation and other overhead costs .”
According to HVS research , some 14,540 hotel rooms across the U . S . have been converted to something other than a hotel ( for example : residential , office , student housing , senior housing ) as of April 2023 .
Speculation abounds , and though some argue that the global economy is not headed for recession , the so-called “ soft landing ” crowd , real estate — and its best use of it — is still open to debate . Some feel that the current hospitality headwinds are blowing so strong that it demands a recalculation , but , still , the surfeit of distressed assets many believed would come , has not .
“ Hotels present an attractive opportunity to purchase existing assets at a discounted basis due to a number of factors affecting the hospitality industry today ,” said Jared Wolf , who leads acquisitions and development at Certes Partners , a real estate development and investment company , whose specialty is hotel and office conversions to multifamily .
Though performance fundamentals have not drowned under the weight of the COVID pandemic and current macroeconomic forces , there are still hard-to-overcome variables , such as remote working , that made a dent and forced hotels to figure out a way to change up how they operate . Meanwhile , the lack of constant , five-day-a-week in the office has hurt downtown hotels .
“ We still see decreased demand for hotels from business and conference travelers , the largest customer segment of the hotels that we seek to convert ,” Wolf said . “ Many of the hotels that we target have not returned to their peak 2019 revenue , are operating at low occupancy and are no longer accretive to the owner ' s overall business . In addition ,
IN INSTANCES WHERE WE SEE HOTEL LOAN MATURITIES COMING DUE IN THE NEXT FEW QUARTERS , YOU MAY BEGIN TO SEE DISTRESSED HOTEL SALES
– RACHAEL ROTHMAN , HEAD OF HOTELS RESEARCH & DATA ANALYTICS , CBRE
44 hotelsmag . com September 2023