Hotels: good deals are yet to materialize

  • Investing in hotels could be one of the most efficient ways to capitalize on the post-pandemic travel economy,
  • Investors are starting to take advantage of the predicted resurgence in hospitality once the pandemic comes to an end,
  • There is an abundance of capital at this time but good deals are yet to materialize. 

It has been about a year since the start of the pandemic, limiting travel and the desired experiences of many people across the globe. There is tremendous pent-up demand to travel, shop, and spend money on experiences, and this could translate to a big boost to the real estate sector. REITs could be some of the biggest beneficiaries as the pandemic (hopefully) comes to an end in 2021. The hotel market has been hit especially hard during the pandemic, with some properties shutting their doors permanently. Some lenders have been taking over from over-leveraged borrowers.

It is predicted that investing in hotels is the most efficient way to capitalize on the post-pandemic travel economy and there were some notable moves in the industry. Alex Rodriguez, the retired baseball superstar, has been a real-estate investor for many years and a joint venture partner Adi Chugh of Maverick Commercial Properties are currently investing in CGI Merchant Group’s $650 million Hospitality Opportunity Fund targeting trophy properties and avoiding transient hotels.

Another notable example, Avistone, a commercial real estate investment firm that specializes in the acquisition and operation of multitenant, industrial properties nationwide, is a new entrant into the hotels investing space. The leaders of Avistone are calling this a good time to get involved in hospitality. The company believes it will be able to identify opportunities to buy below replacement costs in compelling markets and make operational improvements.

There is an abundance of capital at this time. The prevalent amount of hotel properties that are foreseen to enter the market this year as the pandemic continues will be an advantage to them. Investors are planning to take advantage of the predicted resurgence in hospitality once the pandemic come to an end, although the industry still suffers.

However, good deals are yet to materialize. Buying cheap will probably not work this time compared to the Great Recession considering that there are trillions of dollars of fiscal and monetary stimulus in the system; commercial mortgages are being issued at below 3% and lenders are mostly being flexible with extensions due to the pandemic. In my own conversations with several newly-launched and established funds I learned that there are not that many deals to go around. Those who were able to make acquisitions, we not getting more than 20% off the pre-Covid levels.

Fewer U.S. hotels have changed hands this year than in almost any other year. The volume of hotel sales in 2020 is coming in 84% below 2019 levels as of October, according to a report from Real Capital Analytics. Hotel-room occupancy, as of the first week of December, was down 38% from the same week in 2019, according to hospitality industry data provider STR. Industry revenue is not predicted to return to last year’s levels until at least 2023. Despite this grim prognosis, prices of hotels sold this year have fallen just 3.3%. Few sellers have been willing to meet the lower price expectations of buyers.

As 2021 continues on, we just wait and see…

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