Hotel transaction volume, pricing expected to shift

20160323_HunterConference_Day2Panel-(3)Hoteliers during the first two days of the Hunter Hotel Investment Conference discussed the impact of slowing transactions, changing expectations for pricing and the future of debt refinancing.

The pricing and pace of transactions were top of mind at the recent 28th annual Hunter Hotel Investment Conference.

Speakers on the “State of the industry” and “Presidents” panels discussed how hoteliers should cope with low transaction volumes, debt refinancing and deciding whether to buy or sell.

Buyer or seller?
Panelists gave mixed responses when asked if they were buying or selling this year during the “State of the industry” panel. Some said they were net buyers, some said they were focusing on their current assets and others said it depended on the day of the week.

James Merkel, CEO of Rockbridge, said his company is waiting to sell if it can.

“If (we) don’t have to sell today and (we’ve) got a well-positioned asset, then we’re waiting,” Merkel said. “As it relates to being a seller, I think we’re a seller with certain assets that we think are mature and that have cash flow in place.

“And properties that we think are going to continue to or don’t have the Cap Ex needs that might come into play in two to three years, then we’ll hold off.”

Dave Johnson, president and CEO of Aimbridge Hospitality, said hoteliers missed their opportunity if they planned on selling now at the same price as they would have last year.

“If you want to sell now and your pricing expectations are the same as they were last year in 2015, you missed the window,” Johnson said. “The good thing is that most buyers that have held all those assets (for) four, five, six years are at a (point where) they’re still going to be fine.”

Slowing transactions, refinancing debt
Tyler Morse, CEO and managing partner of MCR Development, said he expects transactions to slow in 2016 and that will have an effect on cap rates.

“I think you are going to see a decrease in transaction volume due to the debt market dislocations in 2016,” Morse said. “Fewer transactions means less statistically significant cap rate pricing, so I think you’ll get a little more ball in your cap rates.”

Morse said he expects debt refinancing to be a major issue heading into 2017.

“(We’ll be looking at) if this wall of debt got refinanced,” he said. “I think a lot of that demand is going to get sucked up by the big banks. … You’ve got a lot of countries with negative debt, but at the end of the day, there’s a lot of capital flows, so you’re taking risks.”

Johnson said financing “is going to be interesting to watch throughout the year.”

Keeping the customer in mind
During the “Presidents panel,” David Kong, president and CEO of Best Western Hotels & Resorts, said hoteliers should focus on building customer loyalty to protect against any upcoming downturn.

“We’re still in the up cycle, so I would suggest strongly to consider upping investment in sales and marketing and taking as much market share as we can,” he said. “And then also to invest in the product and service experience so we can then build guest loyalty.

“Because there’s going to be a downturn, and when that downturn comes, you want a much broader customer base and also much more loyal customers.”

Johnson said that his company is focused on working to keep the customer happy. He advised owners and operators to do so as well.

“The fundamentals are still good, and I’ll tell you as owners, we’re really focused on operating our hotels,” Johnson said. “We’ve kind of slowed down on transactions with the debt markets, so we’re saying let’s get back to the basics, let’s worry about top line, let’s worry about hiring good employees, let’s worry about taking care of the guests.”

Merkel said hoteliers can learn things from sharing economy companies like Airbnb about what customers want.

“We talked about lifestyle brands and how many lifestyle brands there are, and everything is lifestyle,” Merkel said. “Every brand is trying to cater to what the customer wants today; they want something that’s well-designed, that’s thoughtful and that’s unique to wherever they are.”


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