• Hotel Executives Declare 2023 Year of Acceleration

    LOS ANGELES — Unlike in years past when optimism among hotel executives was conservative, the first day of the Americas Lodging Investment Summit proved that leaders are all-out bullish on the health of the industry.

    Hoteliers haven't been shy about their positive expectations for a high volume of deals, growth in revenues despite an economic recession and overall strength of travel demand.

    In terms of price tags on hotels that could trade in 2023, past transactions indicate distressed pricing still won't occur. If an owner does decide to sell, experts say pricing will be more realistic.

    Quotes of the Day

    “The short answer is ‘yes,’ but it definitely looks a bit different. It’s certainly a question I get asked as folks are trying to understand what corporate travel looks like. … We’ve found travel is the absolute lifeblood of our business, so we are committed to getting out there.”

    — Danielle Bozarth, senior partner at McKinsey & Company, when asked if her company is increasing its travel budget in 2023.

    “It’s really the Amazons, the PricewaterhouseCoopers, and the McKinseys — not to pick on them — that are not back, and it might be several years.”
    — Remington Hotels CEO Sloan Dean, discussing how corporate travel has already returned for smaller companies.

    "I do think that lodging has done better than other real estate sectors [in promoting diversity]. Having said that, I think there’s a lot of room to grow. This is a topic that’s near and dear for RLJ Lodging Trust; it’s embedded in our DNA. I think the real ingredient is being intentional about giving people an opportunity to lead in different levels. We can talk about it all we want but we need to give people the opportunity.”

    — Leslie Hale, president and CEO, RLJ Lodging Trust, when asked what the hotel industry could be doing to further promote diversity and inclusion.

    Data Point of the Day

    The latest forecast for the U.S. hotel industry by CoStar hospitality analytics firm STR indicates that real, inflation-adjusted revenue per available room will not fully recover until 2025, despite RevPAR on a nominal basis recovering to pre-pandemic levels in 2022.

    Editors' Takeaways

    One day before the kickoff of the ALIS conference, I was chatting with Choice Hotels International’s Janis Cannon. In that conversation, she joked with me that ALIS is like the Super Bowl of hotel industry conferences. And she was right.

    Speakers and attendees knew they must bring a higher caliber of thoughts, which in most cases included being candid, as a large pool of the attendees are investors who want relevant and truthful information.

    I heard multiple times throughout the day — both in a private Lodging Industry Investment Council meeting and on the main stage — that hotels are the golden child of commercial real estate asset classes. With several tech giants implementing layoffs and downsizing office spaces, most hotel owners, brand executives and consultants came to a consensus that office and retail spaces are a greater investment risk compared to hotels.

    This means plenty of capital will be going into hotel investments this year — from long-time investors in the segment and first-timers looking to diversify their portfolios.

    Macroeconomic challenges, such as inflation and high interest rates aren't keeping hoteliers up at night as much as they did six months ago. They’re bullish on group demand, mainly from smaller groups, and continued strength in leisure. Furthermore, the uber-luxury travelers have been unrelenting on their travels and there's no cap on the price they’re willing to pay, IHG Hotels and Resorts CEO Elie Maalouf said.

    I was thrilled to hear from leaders of brands, real estate investment trusts and operators that there’s been significant strides in promoting diversity within the hospitality industry. Though there’s still room to improve, this seems to be the first time that industry peers are genuinely pleased with the progress thus far.

    It’s become a running joke around the hotel industry — or at least in our newsroom — that except in the most dramatic situations, hoteliers always claim to feel the same way: cautiously optimistic. No amount of signs of bad things to come is enough to snuff out that optimism, even if there’s a little bit of caution peppered in to be safe. In an environment with no shortage of macroeconomic headwinds, you’d expect more of the same.

    That’s why I was surprised that the tone at the first day of this conference was, for once, not so much cautious optimism but straightforward, all-out optimism and excitement. Hoteliers and experts are banking on several things that have never happened before, not the least among them is growing revenues during an economic recession for the first time in the industry’s history, and they’re doing so with utter confidence.

    At today’s meeting of the Lodging Industry Investment Council, members were hopeful that even amid a recession, travel demand will remain strong and investors will look more favorably on the hotel industry due to it’s strong yields and the inflation hedge that provides — especially as various other commercial real estate asset classes falter. The biggest question at this point might be whether what feels like an inevitable recession is as shallow as hoped, which would allow for continued recovery in corporate travel demand, or whether it is deep enough to keep travel spending on the sidelines for large companies.

    During the Lodging Industry Investment Council before the opening ALIS sessions, there was a lot of talk about acquisition opportunities through distressed hotels. Someone raised the question of “Where is the distress coming from?” While the answer given cited expectations that debt maturities in 2023 and property-improvement-plan requirements will drive owners to sell, there was some skepticism, and I think rightfully so.

    Almost from the start of the pandemic, we heard about this wave of distress that would suddenly open up all these properties to buyers looking to take advantage of discounted pricing. The wave kept getting delayed. Sure, there were some distressed deals, but for the most part, the wave was maybe a trickle? I don’t think anyone expected the federal government to provide as much — or any — financial relief to both businesses and families during the first years of the pandemic. No one expected that leisure travel would come back so strong, so quickly. We also saw that lenders learned from the Great Recession and didn’t rush to foreclose on hotel loans.

    There’s no federal relief on the way for hotels now and lenders are likely losing patience, but that doesn’t translate to distressed hotel deals. Even if an owner decides to sell a distressed hotel, the last couple of deals have shown it doesn’t result in a massive discount. Everyone has learned over the multiple downturns to look for distressed deals, so all the competition drives up the discounted price until there’s practically no discount left. How it plays out remains to be seen, but anyone looking for distressed deals should do so with realistic expectations.

    Source: www.CoStar.com