While the construction of hotels and resorts is still progressing at a fast pace, new trends are appearing with the ever stronger need for innovation initiated by guests.
The capital markets have experienced a signficant shift in the past six months, and financing for hotel projects is both less available and more expensive than it was in the first half of 2022. Driven by successive increases in the federal funds rate, interest rates have risen and are now typically in the 6% to 8% range, depending on the asset and market. At the same time, concerns related to a potential recession and the impact of inflation on operating costs and consumer spending have induced a layer of caution about the near-term outlook for the industry. As a result, loan-to-value ratios have declined and amortization periods shortened, reflecting the market’s perception of elevated risk in the near term. These factors have combined to make current mortgage capital relatively expensive compared to both recent levels and long-term norms.
Economists, politicians, and business leaders are split on whether the U.S. economy is heading for a recession, is already in one, or will merely experience a slowdown. With continued supply chain disruptions, geopolitical conflicts (most notably the war in Ukraine), and the Fed’s determination to continue increasing the federal funds interest rate, there is tremendous uncertainty around inflation and where the economy is heading. Mixed signals abound, however U.S. gross domestic product (GDP) increased for the first time this year in the third quarter, expanding at a higher-than-expected 2.6 percent annually. Unemployment remains low, wage increases are strong and while growth and earnings are slowing, most consumers and corporations are in good financial condition with healthy underlying credit.
The hotel industry is highly complex in nature and is extremely sensitive to economic and market dynamics. Just as the industry was emerging from the pandemic's shadow, new challenges have emerged, including rising input costs and other inflationary pressures, a bleak outlook for the global economy due to the possibility of a recession in the US and Europe, along with longstanding issues like a labor shortage. As a result, many hotel owners who are struggling to run and manage their properties are finally realizing the importance of working with professional asset managers to review and improve their hotel’s performance.
The deal activity in the global travel and tourism industry has been improving, with 573 deals (including M&A, private equity, and venture financing) being announced during the first half of 2022, up 3.1% over the same period in 2021. However, deal activity in India continues to be lackluster, as the industry has also not yet witnessed a flurry of distressed transactions in the fallout of COVID. Nonetheless, there are several hotel assets for sale in the market and HVS currently has over a dozen buy-side, sell-side, and capital restructuring mandates.
Any optimism for a post-COVID resurgence of hotel lending activity has evaporated as the market stalls in the face of the highest interest rate environment in over a decade. The surging economic uncertainty is undoubtedly impacting the level of angst many hotel owners are feeling at the moment. The magnitude and unpredictability of changing loan underwriting assumptions in the past sixty to ninety days alone have meaningfully increased investment risk.
A hotel’s food and beverage offerings can be one of the most difficult areas of the property’s operation to keep control of and, without rigorous oversight, can bleed money and lead to hard-to-explain holes at the end of the month.
The waterpark industry continues to flourish in the United States and Canada. While the pandemic slowed demand and growth in 2020 and 2021, 2022 has largely been a return to normal for operators but also for developers and investors looking for new opportunities to leverage the growing popularity of waterpark resorts along with increasing consumer demand for fun, family-oriented vacation options.
’Jack of all trades, master of none’ is an English idiom which dates from Elizabethan times, when it was once used to describe Shakespeare. It is not a complement, so next time you’re looking for something flattering to say about your boss, don’t be tempted.
With the first half of the year now in the books, 2022 has thus far provided an unexpected and tumultuous ride. It was only six months ago when the S&P 500 reached all-time highs in a world where lingering supply chain pressures and potential COVID outbreaks seemed to be the two most pressing risks to economies across the globe. While those two dangers are abating, a refreshed slate of macro-overhangs may be more daunting than ever. Included are the ongoing war in Ukraine, rising interest rates and soaring levels of inflation.
Insights about the job description and specific tasks of a Hotel Asset Manager by visiting lecturer, Heinz Wehrle. Hotel Asset Management requires a holistic overview and understanding of the hotel business in its entirety. It is one of the few disciplines which demands both strategic thinking and analytical application.
David Sangree, MAI, CPA, ISHC had the opportunity to attend the NYU International Hospitality Industry Investment Conference on June 6-7 at the New York Marriott Marquis. The following are some key highlights from the conference.
The hotel sector has grown used to absorbing the blows as the pandemic has thrown punch after punch in their direction. Yet now, as the rather choppy recovery progresses, inflation could well be the blow that lands the knock-out punch to some in the sector.
Let’s not forget at this critical period that our industry accounts for 10% of the world’s GDP and almost 300 million jobs. Overall, worldwide supply accounts for about 45 million rooms and branded supply accounts for about one third of that volume.
The value of real estate can be protected and enhanced when negotiating post-closing price adjustments. After legal closing, the purchase price true-up occurs, to adjust for any difference between the purchase price, which is determined on a transaction’s closing date and based on estimated financial metrics, and the actual purchase price, which is determined using financial metrics that become known only after the closing date.
The value of real estate can be protected and enhanced when negotiating post-closing price adjustments. After legal closing, the purchase price true-up occurs, to adjust for any difference between the purchase price, which is determined on a transaction's closing date and based on estimated financial metrics, and the actual purchase price, which is determined using financial metrics that become known only after the closing date.
Experts expect to see a flood of interest in the EB-5 program, both from foreign investors anxious to immigrate to the US, and from real estate developers with shovel-ready projects seeking capital.
As the world was emerging from a once in century pandemic, global and national events during the first three months of 2022 have resulted in a transformative quarter unlike any for nearly 80 years. During the nuclear superpower age, the notion of an unprovoked brutal attack and invasion of a sovereign state was the stuff of fiction. “Never again” is a phrase associated with the Holocaust, the genocide of European Jews during World War II. Unfortunately, the phrase is merely two words as history is currently repeating itself in Eastern Europe.
Since the renewal of the EB-5 program this year, there has been a lot of talk about what this means for developers interested in taking on new projects. Our recent article in Westlaw Today sums up the latest information about the program. Part one is below; part two will be published next week.
The hotel development and financing world is buzzing with the news that the EB-5 program has been renewed, creating new opportunities for upcoming projects. My partner David Sudeck and I have written the short update below to help get you up to speed.