NEW YORK CITY—Providing an opportunity for hotel real estate professionals to network and learn about the sector’s current and anticipated performance, HREC Investment Advisors and Interstate Hotels jointly hosted a seminar—entitled Real Time Hotel Investments and Market Trends—in Midtown here last week.
A group of about 30 hotel industry investors, lenders and executives came together to hear the findings and forecasts of HREC’s Geoff Davis, president and senior principal and Mike Cahill, CEO and founder; Ross Woods, principal, Hotel Investment Strategies; Michael Bellisario, senior research associate, real estate, Robert W. Baird & Co. and Leslie Ng, CIO, Interstate Hotels & Resorts. The event was repeated the following night, and Davis tells GlobeSt.com that similar programs could be brought to Washington DC and Los Angeles down the road.
Among presenters’ sit-up-and-take-notice comments were the following thoughts: “Occupancy will continue to be strong through 2015 and then it will slow down as new supply comes online,” said Davis. “The growth of new supply has been tempered.”
One market type will continue to suffer a shortage of new supply, he continued. “I think you’ll see few full-service hotels built in suburbs for the next decade.” Still, it’s a good time for the hotel segment, added Cahill. “This is one of those rare times you get every cycle where you can say ‘the window is wide open and it’s beautiful outside.’ And we’re not even at 51% of the volume where we were at the peak.”
Still, others tempered that optimism. “There’s been no ‘real RevPAR’ growth since 1958, asserted Woods. “It’s just been oscillating.” Several financial conditions—including a particularly surprising one—are of concern too.
“New York City, Miami, Anaheim and Atlanta will likely show the largest returns and there’s an insignificant spread on cap rates between primary and tertiary markets. Credit is not the biggest challenge; it’s our inability to quantify and price risk.”
Bellisario talked about what investors look for before buying into the market. “Public investors want lowly leveraged, easy-to-understand balance sheets.” More generally, investors like to invest in properties in gateway markets, or hotel companies with a presence there. “They like to invest in companies that own assets in markets to which they travel often. High barrier-to-entry markets are favorites too.”
Entrants to the select-service sector are creating a shifting dynamic, added Ng. “Blackstone has come into the space, which has had a big impact. The company’s stated goal is $5 to $7 billion in select service over the next fewyears. Non traded public REITs in the top 25 markets also are coming into the space.”
Ng also spoke of other trends that could shake-up the hotel industry, including the success of Airbnb, crowdfunding and more. Watch for a two-part series, starting next week on GlobeSt.com, discussing some of these new wrinkles in the industry in greater depth.