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The state of the hospitality market – Is the market dictating a sell now strategy?

Hotels working to meet ends meet and provide to those they can, have yet to reach pre-Covid levels of demand. Due to the market conditions, it seems many of these hotels that haven’t brought their numbers back up might be looking into putting their hotels up for sale to save what they can. 

Here’s what key industry leaders are saying – a summarization of their sit down at the Bisnow Lodging Investment Summit on October 19th.

Leaders are saying that many of these hotel owners do not have money for the renovations they need, or even to continue to defer these renovations that started before Covid. This is pushing them to a less desirable position and making them less competitive overall. 

Renovation deferments continue to grow, and this is causing some concern for many hotel owners because they’re losing their competitive edge over others. Those looking for a place to stay are willing to pay a premium for an updated room and well-maintained property rather than staying at a hotel that has not been updated in years. This is causing the hotels to lose out on even more revenue. 

The money that banks previously lent out to these hotels are now closing their doors to new deals. This is good news for those investors who are looking at spending the cash they’ve saved up to buy the hotels that didn’t make it through the Covid shut down and won’t make it several years post-pandemic.

Even though hotels are bringing in revenue at a higher demand, this revenue is going to pay back debt. The same goes with the reserves they have kept during the pandemic. Hoteliers need to catch up on the late payments, the loans that are maturing, and other pieces of running the hotels

“A lot of loans are going to be maturing here shortly that have been pushed out, so there is a lot of lender fatigue,” CEO of the Peachtree Hotel Group Friedman said. “With that lender fatigue, coupled with the need to do a lot of renovations that have been pushed out, that’s going to push a lot of groups to sell.”  

“Over the last 18 months, everyone thought there was going to be this huge distress trade on the real estate equity side. It hasn’t really arisen,” Friedman said. “I don’t think it’s all of a sudden going to take place, but it’s going to create an opportunity to buy at more opportunistic levels.”

The need for renovations comes from high-profile hotels like the Hilton and Marriott. They have high standards for the look, feel, and brand of the hotels and rooms. Not just this, but visitors do not like to be in hotel rooms that need updating. This is pushing hotels to do better, but without the right reserves or funds, they are unable to do so. This is causing them to lose some of the business they’d normally have. 

“It is important that owners and brands do reinvest in those properties and try to figure out the balance from an owner-lender-brand perspective,” Hilton Senior Vice President Hollman said. “It has to be a negotiation. It’s really a case-by-case basis. From Hilton’s perspective, we’re trying to be as flexible as possible, but also protecting the integrity of our brands and the overall experience of our customers.” 

While this is going to be a great thing for those investing in these properties, it is not going to happen all at once. It is going to be a slower trickle into the market. 

Expect residual impacts of distressed hotel assets to play out with time. These unrenovated products that can’t afford to continue to run are likely going to sell at a premium price which can then be used to convert the properties into multifamily properties. 

There’s 4x as much money on the sidelines looking for deals as before the pandemic. This new shift is a game-changer, and we can put you in the front seat of the action.  

As a boutique brokerage firm with an extensive investor network, personal relationships with industry leaders, and real hotelier experience, NewGen Advisory has deeply connected roots with access to buyers ready to move and the ability to connect buyers with a variety of financing opportunities. This helps buyers and sellers reach the opportunities they’re grasping for while working with the right company to help them get there. 

The state of the hospitality market – is the market dictating a sell now strategy to follow? Our team of dedicated industry specialists is here to assist you as the market continues to shift and create opportunities several years post-pandemic. If you are looking to move or acquire assets, contact us at info@newgenadv.com

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