At our February REAG Hospitality Roundtable, we gathered again with mixed expectations. Apparently, distress in not so stressful this time around. We expected pressure from the lenders, but it didn’t come. Apparently influenced by the last crisis they decided to implement waiting tactics. Contributing factor is that they would not know what to do with the repossessed hotels either.
Pain appears to be replaced with numbness and hope. Everybody is looking at the light at the end of the tunnel and waiting for it. Even the convention hotels in secondary markets that are below 20% occupancy where able to renegotiate terms with the lenders until the end of Q2.
After working only weekends in the previous period, large Las Vegas hotels are planning to get back to 24/7 operations in the next few weeks. Hard to believe, but bookings 90-days-out are on the pre COVID levels (!?) and meetings for 250 people will be allowed. Pool season starts soon and that brings additional outdoor space. Nevertheless Las Vegas ADRs suffered greatly.
Leisure travel is on a good track, but the question still stays if business travel is ever going to come back, or we will continue to zoom.
What we expected to happen at the beginning of the year, didn’t happen. There are hotels for sale but not at the discount we expected. Projects for sale show 16-18% IRR. At that return everybody is looking at less risky properties and away from hotels.
Lenders that were talking tough in the last 2 quarters, changed their tactics and are negotiating even with the properties that still look desperate.
With markets flooded with cash there is no urgency.
The New Kids on the Block
Successful Airbnb IPO gained a recognition for the short-term rental market. Even the big flags started paying attention and exploring the ways to get into the market. It opens a discussion about the new type of investments – properties built for the purpose of short-term rental. It’s still early days, but with abundance of cash, and startup crowd entering the field, there will be moves in that direction.
To finish on the positive note:
Boutique hotel in Colorado, our hero story, is back on track, increasing ADRs above $250. Things are so good that ownership is adding another similar property in Colorado to their portfolio.