The industry resurgence has been clicking along for nearly two years now when it comes to the customer side of the business. They’re coming to hotels in record numbers and starting to push rates up, up and away. In fact, some markets are already reporting record breaking rates as demand continues to push overall industry confidence.
Now that confidence is spilling into the development side of the business. Here, myriad hotel owners are in the midst of several schools of thought because of certain trends. For existing hotels, owners can complete brand required PIPs since most hotel companies are currently looking to get properties in peak condition. Owners can do the flag dance, that is, look to be wooed by new brands as they decide to ditch current brands in favor of a new choice. Switch flags within a brand family, and/or go ahead and build new properties. There is even an uptick in relevant and meaningful new construction.
But for most people attending this week’s BITAC® Owners here at the luxurious St.Regis Monarch Beach, they were interested in the state of the deal market. BITAC® is of course the industry’s preeminent idea exchange and at this sold out event attendees not only got a chance to network with top industry decision makers such as owners and developers, but also get the inside track on what is really happening in the hotel business.
The answer on how owners are handling the deal market though is different for each one. Deals and financing for new hotels or to buy existing ones is out there, but only if the banks say the deal makes sense. And what makes sense is completely dependent on many external factors including the amount of experience that owner brings to the table as well as more common points such as location and asset qualilty.
“We have seen seven straight quarters of growth. If you are the right developer in the right market and have the right track record, you are getting things done,” said Tim Muir, SVP Development with Wyndham Hotel Group.
But you have to have the right stuff. “When underwriters are working on deals, industry experience is more critical than it was during the previous upturn. The good news is there is plenty of capital for refinancing,” said Bill Sipple, Executive Managing Director with HVS Capital Corp.
However, capital is not as readily available to some just yet when it comes to new construction, according to BITAC® Owners attendees. We know this because at BITAC® we utilize a real time voting system to uncover from our sold out crowd what is really going on with critical industry trends.
And attendees see readily available new construction financing to still be a bit off. Just 4 percent say that financing is happening now, 19 percent think readily available financing will be back within a year, 25 percent think it will be between a year and 18 months and 4 percent think it will be up to two years. Most interesting is the 41 percent that believe financial markets may never be the same.
But as far as financing never being the same again is concerned, we think that could be good thing. That’s because stricter standards would keep people out of the hotel development business that do not have the requisite experience to have success on their side.
“Deals have to make sense to get done. It is tough out there. However, Canada was extremely strong this past year. Financing is strong there,” said Mark Williams, President of North American Development with Best Western International.
From our perspective that just makes sense. Tougher deals will make for a better overall hotel economy when the next downturn will inevitably hit. However, all indications are that downturn will be years away as there is still plenty of time to enjoy this upcycle as demand remains strong and supply remains in check.
Shane Platt, RVP Franchise Sales and Development with Choice Hotels International said the industry may be in an interesting sweet spot. “This is the rare time it is a good time to both build and buy. There are great prices on deals and great rates at banks.”
And it looks like BITAC® attendees are feeling the same way. When asked, 40 percent said they will start new construction on a property or two while 29 percent said they are pursing development aggressively. Four percent even said they are developing at pre-recession levels while 28 percent said they would not be developing a new hotel in 2103.
“This is a great time to be opportunistic. I see a lot of opportunity with lenders, you just need to reach out and see what’s available,” said Wyndham’s Muir.