Investors Target Hotels Near Expanding Refineries and Pipelines
Southwest Hospitality Management believes in the Permian Basin hotel market and is targeting sustainable brand assets such as Marriott in energy-related markets that have a low barrier to entry.
HOUSTON—Despite fluctuating oil prices, hotel investors are placing capital into energy-related markets, such as west Texas and locations near the Eagle Ford Shale. CBRE expects hotel transactions within energy markets to become even more active as pipeline expansions across west Texas are implemented in 2019 and 2020.
As a result, the CBRE Houston hotels team closed 11 hotel transactions in the last 12 months in energy-related markets. The Houston CBRE Hotels team consists of senior vice president Michael Yu, Rahul Bijlani, vice president Dennis Drake, Manasvini Sridhar, Tyler Bean and associate Agrama Mannappperuma.
“2018 saw increased capital investment from energy companies, thus hotel demand in many energy driven markets increased along with increased buyer interest,” says Yu. “These markets have a lot of unique challenges for buyers and sellers due to the significant swings in revenue. We have relationships with the specialized investor groups that will consider these assets. Transactional experiences in these types of markets and the ability to execute rapidly are both vital for successful outcomes.”
Most recently, Arizona-based Southwest Hospitality Management acquired the 108-room TownePlace Suites by Marriott in Odessa, its second in the Permian Basin. Ash Patel, president and CEO of Southwest Hospitality Management, says the firm believes in the Permian Basin hotel market, and the TownePlace Suites will provide a good value and ROI for its investors.
“We are targeting assets that are sustainable brands like Marriott in markets where refineries and pipelines are expanding,” Patel tells GlobeSt.com. “Energy-related markets have a low barrier to entry, but you have to be prepared with reserve capital for declines in the oil and gas market. Of course, it is all worth it when the oil and gas market is strong.”
Other transactions arranged by CBRE include the 83-room Microtel in San Angelo, 116-room Hyatt House Houston West Energy Corridor, 79-room Holiday Inn Express Energy Corridor in Houston and the 69-room La Quinta Floresville.
“Buyers gave us feedback that with low oil prices, the timing is right to acquire properties at a good price, while renovations and management improvements should position investors to take advantage of any rebounds in the oil market,” adds Drake.
Based on a favorable outlook for the US economy, CBRE Hotels Americas Research is forecasting continued growth in US hotel revenue and profits through 2020. According to the March 2019 edition of Hotel Horizons, CBRE Hotels Americas research is forecasting US hotel room revenue per available room to increase by 2.5% in 2019 and an additional 2% in 2020.
“We are leveraging our lender relationships to find the right sources of capital for oil- and gas-focused hotel assets to help our clients finance transactions in Houston’s Energy Corridor refinery regions and West/South Texas Markets. Our borrowers include foreign investors who look at current conditions in select energy markets for opportunities to invest below replacement costs,” said Manas Sridhar, CBRE vice president.