Last week, I was fortunate enough to join some of the brightest minds in the lodging and hospitality world for two days of panels and keynotes on putting together deals, CapEx projects, economic outlook, and more.
Across panels and throughout the Bisnow Lodging Investment Summit, there were definitive trends.
The US Government is Broken, Everyone Knows It, and It’s Hurting the Lodging Industry (and the Economy In General)
It seems like just yesterday the economy was stalling due to “what would happen in the midterm elections”. Eighteen months later, consumers and the market have just as much (or as little) confidence in what will happen in November. (Are we really going to do this every two years??)
As we know, when people feel uneasy about what will happen, it means certain paralysis. Bruce Wiles, COO at Thayer Lodging Group said that we will likely see a stalling in any deals getting done by August until the election.
My idea for ensuring prosperity for the industry
Former Director of the Congressional Budget Office, Doug Holtz-Eakin, said that we are in very big trouble due to the 6 major Congressional decisions that need to be made between elections and the end of the year–tax cut expirations, spending cuts, and another extension of the nation’s borrowing limit.
This proverbial “kicking of the can down the road” means that there is no cushion for the inevitable “bad things” that happen that few could predict. The lodging industry could suffer from a lack of financing due to uncertainty in the markets and will lose due to lack of consumer confidence. It all sounds vaguely familiar.
Also, don’t get Tom Corcoran, Chairman of the Board of FelCor started on the pool-lift legislation going through Congress currently. (Somehow we can’t manage to pass a national budget…but I digress).
Luxury Demand from China Is Big
Whether it be Chinese traveling domestically or those who want to travel internationally, there is a large demand from China for luxury. Arne Sorenson, new CEO for Marriott International, said that in the next few years, there will be more Ritz Carltons in China than in the United States. However, the consensus seemed to be amongst panelists that if you’re not already in China (and it’s a long process to get your first deal), it’s better to be in the US on a risk-adjusted basis.
Europe Could Be Catastrophic
The day before the conference started, French president Nicolas Sarkozy was defeated by Socialist party candidate,
Taking its cues from Ernest Hemingway (seen here in my hometown of Sun Valley, Idaho), Congress continues to kick the can down the road.
Francois Hollande. If Germany and France commence open sparring, the market will take notice. Portugal, Italy, Greece, and Spain remain questionable. Doug Holtz-Eakin noted the unrest in Europe and an increase in oil prices as his two major macroeconomic concerns.
Deals Are Getting Done…and There is Financing
A resounding tone throughout the conference was that there is money out there and you can get financing. It was noted that now is an especially good time for transactions before Bernanke increases interest rates in 2014. Several panelists said that they were buying caps now, or even fixing their debt if they intended to hold the asset for a longer period of time.
Major REITs are moving away from secondary markets and looking mostly at major markets on the coasts. DC remains a highly coveted market for hotel deals. Although Suril Shah, VP of Acquisitions for Starwood Capital Group, did say that they have completed more than 60 deals in middle-America markets and found those assets to be good hedging for their greater portfolio.
While there are likely to be more debt restructuring and foreclosures when $30 billion of debt in the CMBS market comes due in 2012, it’s not as daunting when we learn that many owners are finding financing and able to invest in bringing distressed properties back to par rather than allowing them to go into foreclosure.
Part two of this series to come where I’ll cover the asset management and guest outlook trends…