At our November REAG Hospitality Roundtable, we continued where we left off in August. The big question is when and where the movements are going to come, and we are still waiting. It seems that survivors and casualties are more visible, but there is no definite answer yet.
The Pain
Pain is unbearable in the urban business and convention hotels. Other segments either accepted the level of pain or are healing slowly.
Las Vegas is in turmoil. Without conventions hotels are open on the weekends only. Conventions reservations for Q3 and Q4 are not canceled yet, but Q3 is far away. Without crowds Las Vegas is losing its appeal. Sheldon Adelson is talking about selling.
Price Discovery
Consensus is that transaction could happen at 60c on a dollar range. But, aside from very few exceptions, they are not happening. At that price point owners are not incentivized to sell. On the other side, after accounting for reserves and operational losses, buyers are not incentivized either. And Lenders are not incentivized to repossess hotels with operational losses. Everything resulting in a stalemate. Overall feel is that in January things might get rolling. As year 2023 dominates the talk, it’s too long to wait and see, so something will happen before. As lenders are getting tired of forbearance, one possible scenario is higher activity in the debt market.
Example of a successful loan supported transaction with a rate below 5% involves: price of 60c/$, buyer with the strong record, large reserves and a recourse… but even those are very rare.
The Lenders
Even though lenders were, and still are, threatening not to be so understanding, it seems that they opted to play along for one more quarter.
Rescue capital is non-existent or very expensive. Instead of taking expensive loans, owners who could afford, decided to support their properties with rescue capital. Those who can’t afford probably can’t get the loans either, and are in serious trouble. Once again, cash is the king and recourse is back.
To finish on the positive note:
Luxury and resort markets are commanding higher ADR’s (Average Daily Rates) with lower occupancy rates which might even out their RevPAR (Revenue per Available Room). Traditionally resilient limited service market is surviving as expected.
Boutique hotel in Colorado, our hero story from the last quarter, suffered from surrounding wild fires and the aftermath, but it’s on the road to recovery.
Participants:
Stephanie Yesenofski , Zachary Streit , Daniel Gutierrez , Mark Davidson , Ed Duess , Allen Khatchatrian , Austin Jones , Reuben Berman , Alex Bajc
