• Hotel Investors Expect More Deal Opportunities This Year   

Excerpt from CoStar

Capital Requirements of Loan Maturities, Renovations To Drive Sales

Hotel industry executives at the Americas Lodging Investment Summit laid out deals expectations for 2024 and how loan maturities and overdue renovations will motivate sellers.

The higher cost of capital has slowed the pace of U.S. hotel deals over the past year, but new factors coming into play soon could spur more activity.

During a panel on the transactions environment at the Americas Lodging Investment Summit, hotel industry executives spoke about who they think will be active buyers and sellers and what will help drive more deals.

There are three main categories of hotel buyers: the real estate investment trusts, private equity funds and high-net-worth individuals and private companies, said Richard Stockton, president and CEO of Braemar Hotels & Resorts. Last year, the REITs and private equity funds mostly took a step back, but now they’re starting to come back. The high-net-worth buyers are also interested.

“It's difficult to generalize and say that your categories of buyers are totally different from what they used to be,” he said. “I think it's just there's a lot less of them, and they're slowly coming back to the market.”

Last year there must have been more broken deals than ever, and only about 10% of all deals marketed actually traded, Stockton said. There were a lot of opportunistic sellers who didn’t get the price they wanted after testing the market to see if they could hold on to their valuations. When they didn’t get the number, they pulled back.

Much of that has been washed out of the system now, he said. This year, the hit rate will be higher because there will be sellers who want or need to sell.

“They’re no longer out there opportunistically testing the market to see if they can reel in a big number,” Stockton said. “I think that these are the days when that opportunity passed.”

KHP Capital Partners' hotel portfolio is a balance between major urban markets and leisure destinations, said Ben Rowe, co-founder and managing partner. Prior to the shift in capital markets, the firm had looked at selling some of its higher-performing leisure properties because it was worried about a downside risk to performance given the expectation that demand patterns would normalize. There was also a lot of capital chasing those opportunities, driving up valuation.

Today, many of those markets have pulled back to some degree, Rowe said. The cost of capital has affected valuations.

“I think that an entry point in the leisure side is starting to get a little more interesting,” he said. “But our primary focus today is more on those opportunities where there still is lingering distress from COVID, which is compounded by the capital market pressure and where you can buy it at that deep discount to replacement cost.”

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