Obtaining leverage through debt financing is key to achieving the desired equity return on a hotel acquisition. The reduced availability and prevailing high cost of traditional loans are forcing buyers to be creative and consider alternative strategies to seize an acquisition opportunity. This article presents a few of these alternatives.
Hotel development is a complex undertaking. It requires little of the skills to operate and monetize the asset. Owners and architects are often ill-equipped to measure up the requirements for running a successful hotel a few years down the road. While certain industry trends exist, fundamentals still need to be observed. Words of caution for those attached to specific brands or roles a hotel is meant to fulfill – in today’s world of hyper-efficiencies it is becoming more difficult to provide everything for everyone. Or specifically: provide a comprehensive range of service to all types of travelers. The real estate required to accommodate these service encounters has simply become too expensive to build.
Travel bookings are back. Online sales are expected to account for 76% of total revenue in the travel and tourism sector by 2028, by which time, revenue is set to reach £746.4bn (Statista).
Accommodation providers - from hotels to serviced apartments - need more than just a tech plug-in to succeed in today’s digital-first landscape. As the distribution landscape becomes increasingly fragmented, and guests’ demands and expectations evolve at pace, operators are turning to representation companies to devise and implement wide-reaching commercial strategies.
Over the past couple of months, it has become increasingly clear that interest rates for hotel financing, and just about everything else, may stay higher for longer. As markets adjust to this expectation, many investors are realizing that they may not be able to delay deals until rates drop back down to so-called “normal” levels. There is mounting pressure for financing decisions that will need to be made in the coming months. In this article, we have compiled and analyzed historical hotel interest rate data, as well as indications from the Federal Open Markets Committee (FOMC or “Fed”) on the anticipated direction of future interest rates, to help provide some context for the past, present, and future of the hotel financing market.
Digital procure-to-pay (P2P) solutions are a no-brainer for the modern hotelier, streamlining procurement cycles and generating insights for more strategic purchasing decisions. But these goals can’t be realised unless everyone is on board for the investment—particularly hospitality leadership and owners.
A capitalization rate (“cap rate”) is a shorthand expression of a given investment’s return and represents the weighted average return to the debt and equity positions. As detailed in this article, hotel cap rates are higher than they’ve been in recent years and are unlikely to decline anytime soon.
Determining the current selling or asking price for a hotel is a bit tricky. Compared to estimating the present value of a house it’s more like a detailed math exercise rather than a google search on Redfin. That’s what this piece is all about, how you can estimate the value, AKA sales price.
Prior research conducted by CBRE Hotels Research revealed that hotel management companies were rewarded handsomely as the U.S. lodging industry recovered from the COVID-19 pandemic. An analysis performed by CBRE in April 2023 found that total hotel revenue increased by 153% from 2020 to 2022, while Gross Operating Profits (GOP) grew by 437%. This resulted in a 68% increase in the fees paid to management companies and brought management fees back to pre-pandemic levels. The increases in fees were largely due to the improved performance of U.S. lodging properties, which in turn triggered the payment of incentive management fees.
For hotel owners, embracing a property improvement plan (PIP) may initially seem financially challenging, especially given today’s market uncertainties, high construction costs, increased interest rates, and labor shortage. However, PIPs serve as a valuable opportunity to reassess the hotel’s overall strategy and help chart a course of action toward enhanced profitability – whether undergoing a PIP, switching brands, or selling the asset.
Embarking on a hotel renovation? Armed with a Property Improvement Plan (PIP) but unsure where to start? We’ve got you covered with insights learned at the recent Hunter Hotel Investment Conference in Atlanta where industry experts spoke from a diverse range of experience on one of our favorite topics – PIPs and Capex investments.
In the ever-evolving hospitality industry, the question of how to effectively compensate hotel operators remains crucial. While the basic premise of paying managers for their management skills holds true, the prevalent incentive fee structures may no longer adequately align with market realities, particularly for owners.
Hotel professionals have a responsibility to mentor today's emerging leaders to be effective lodging professionals. We cannot be effective in mentoring these professionals unless we know what expectations they will likely face in their career.
If your hotel uses in-house software to manage procurement, leadership may be reluctant to adopt a cloud-based solution—especially if an on-premise system has served you well for many years. This mindset is likely to put your hotel behind competitors in the near future if it hasn’t already.
It is common knowledge that in order for a lodging operation to be successful, market conditions that contribute to that success must be in place well before the operation opens its doors. While these conditions may be primary to the operation's success, there are secondary economic factors that should also be present before the property is operational.
Effective procurement departments have a significant positive impact on hotel performance. To endure persistent industry challenges—such as price volatility, tight profit margins, evolving guest preferences, and labour shortages—hoteliers must fine-tune their procurement operations to ensure greater efficiency, agility, and cost savings.
As we navigate the ever-changing landscape of the hospitality real estate market, our team at CBRE Hotels remains committed to providing you with the insights and guidance you need to make informed decisions. In this edition of our newsletter, we'd like to share some key observations from the front lines and offer our perspective on what lies ahead.Some of the most significant trends I've noticed in middle-market hotel investment sales, where we are the market leader, in recent months:
Cash is King. That’s an old expression but it’s also one that still rings true today. Everyone likes cash even if we don’t carry so much with us personally anymore. It’s important to recognize that some people will help themselves to your cash if you let them. That might sound extremely clinical and you’re right it is, but it’s also a fact. The only way to minimize your risk is to have a set of controls in place to keep honest people honest and the less than trusty, on their back foot.
In recent years, hoteliers have entered a period of unexpected disruptions. To address these changes, leading chains and independent operators are looking to integrate modern technologies into their operations and guest offerings. According to Deloitte, over half of hoteliers expect automation to improve their bottom lines as well as guest experiences.
As the travel market continues to evolve, with occupancy levels exhibiting extraordinary growth in most major markets around the world, today’s hoteliers are facing an array of challenges in managing their operations efficiently. From guest experience enhancement to the digitization of financial and operational management, ensuring the seamless integration of disparate property systems has become paramount for success. Particularly within a hotel organization’s finance and accounting departments, the importance of system integration cannot be overstated. Ensuring that all elements of the tech stack complement each other’s capabilities not only streamlines critical property processes, but also enhances accuracy, transparency, and overall productivity.