IS NOW THE TIME TO BUY -OR- THE TIME TO SELL?
Investors are eagerly waiting on the sidelines for the moment when distressed hotels are no longer able to keep the doors open and banks begin taking action. However, this scenario is not materializing in today’s current market environment. Furthermore, it does not appear that it will be the case anytime soon.
Despite the horrendous year for corporate hotels with ADR and occupancy plummeting well below their norm, distressed hotel owners are not ready to throw in the towel, and banks are not pushing them as in the past.
The industry over the past ten plus years has experienced exponential growth. 2019 saw 3,159 new hotels opened adding 446,911 rooms around the world. The industry is valued at over $570 billion worldwide, with over 700,000 hotels and resorts and 16.4 million hotel rooms worldwide. 2020 that growth all came to a screeching halt. The last time this abrupt of a downturn hit, hotels were selling for a dime a dozen.
Why is this downward cycle unlike the last one? With hotel losses mounting and no turnaround in sight for at least the next 18-24 months, how can this be more of a seller's market than a buyer's?
Three factors continue to prop up the industry: liquidity in the market, lack of appetite to foreclose by the banks, and expansion of leisure travel due to remote-working policies. More to come on these factors in next post in this series...
Circling back to the original question, now IS the time for hotel owners who have been thinking about selling to start putting out their feelers. Investors are ready and will eventually have to concede that owners are not budging on their valuations. It is a seller's market for now, or is it? "CMBS..."