ALIS Notebook: Insider takeawaysBy Mary Scoviak | January 28, 2023Share What’s new in the deal stack? Where are the opportunities most of the market is missing? Is bigger better for every brand? In one-on-one interviews, panel discussions and conversations during networking opportunities, here is some of the word on the street from ALIS 2023.Bulls versus bears: For the speakers and the more than 2,600 hospitality owners, developers and operators who attended ALIS 2023, the bulls have it. Just don’t expect a stampede."Transactions are going to happen, but the questions are who will be selling and who will be buying?" said Alexandra Lalos, managing director, Hodges Ward Elliott, speaking on a transactions outlook panel. One of the concerns among the panelists is that not enough deals have been done to get a clearer picture on what to expect in terms of LTV and interest rates. "When we look at a deal, are we assuming the asset will achieve the right growth rate and refinance in three years? That's too dangerous to predict," said Andrew Holt, managing director, Eastdil Secured.What the panelists do see is a stronger second half for transactions and "some international interest coming back."Take the heat: This year's hottest hotel markets are also mostly frost-free. Developers can leave their coats and gloves at home. Of the 10 top-performing metro areas in 2023 (as compared to both 2022 and 2019), according to Ryan Meliker, president, LARC, all but two (Minneapolis and Washington, D.C.) are more or less toasty year-round. San Francisco, San Jose and Houston join the two chillier locations as the top performers compared to last year, while pricing power and leisure exposure in Palm Beach, Puerto Rico, Miami, Phoenix and Orlando should help sustain recent RevPAR gains.Upper-upscale will lead 2023 RevPAR growth: It’s likely to be the biggest RevPAR winner in 2023 and 2024, with sector-leading increases of 8.9% and 9.1% respectively. Luxury’s gains will hover in the 6.9% to 7.3% range for the same period. The good news for hotels with lower room rates will be a steep RevPAR jump from 2023 to 2024, adding two percentage points or more. Economy hotels will be among the few sectors that will build RevPAR momentum into 2025, according to Amanda Hite, president and CEO, STR.Wait till next year for bigger profit gains: Slower ADR and higher costs will tap the brakes on profitability growth for 2023, but GOPPAR should be back on the advancement track for 2024—rising from $51 this year to $54 next year, Hite added.Enough about 2019: “Today, we’re talking more about the ability to drive topline revenue,” said Patrick Short, president, Peachtree Hospitality Management, which recently signed a deal with HOS to manage nine of its hotels with the potential to own more in future. “When we’re having discussions (with prospective clients), I don’t let the conversation be about 2019. We’re already ahead of that; our rates are higher now.”There are also some subtleties that investors and CFOs may miss, Short added. “While we know that F&B won’t bounce back as fast as rates and that rising labor and supply chain costs are going to cut into bottom-line foodservice revenues, we also need to understand that 2023 is a different operating atmosphere than 2019," he said. "For example, during and post-COVID, customers became conditioned to the fact that foodservice will take longer because one server may be assigned to eight tables rather than four, that menus might be smaller and that seeing some open seats doesn’t necessarily reflect a lack of popularity or quality. The mission statement for the operator has also changed. It’s no longer about, ‘Where can I save $1?’ It’s about, ‘What can I execute on that will build profits?’ Yes, there may be 12 people eating in the restaurant, but with food delivery services, the kitchen may have another 24 orders on their way out the door.” It also takes more creativity and better planning to offset the tide of rising costs. As Short pointed out, there are subtler options often left on the table. “Take inspections, for example. At one location, the number of city inspectors went from three pre-COVID to one today. That obviously can cause delays. So, we look at which of our teams can be brought in later in the process to leverage costs and time more effectively.”Big blips on the hospitality radar -- luxury, leisure and length of stay: The ROI from leisure continues to make this sector an investor target, particularly in the 5-star and all-inclusive spaces. IHG Hotels & Resorts has major plans to expand its Luxury & Lifestyle Collection with the planned opening of its first InterContinental-branded hotel this year in suburban Seattle and the 2026 North American debut of the top-of-the market Six Senses brand with a 95-room hotel and 16 residences nestled on a 3,000-acre site in California’s Napa Valley.The hotel giant also wants a bigger slice of the all-inclusive pie. A recently signed strategic partnership with Spain’s Iberostar provides a ready-made presence of “up to 70 hotels,” many of which are in locations currently on IHG’s map. “Travelers are looking for a modernized kind of luxury that addresses their individual ideas about wellness, experiences, food and comfort,” said Elie Maalouf, CEO of the Americas, IHG Hotels & Resorts. “The ultra-rich have no price cap (on rate). They are generating demand for ultra-luxury resorts and that’s not likely to change even in a downturn."Remington Hotels is mulling its first foray outside of the United Sates—most likely a move into the Caribbean, Latin American and Mexican resort sectors. The company will “more likely be brand-affiliated outside the U.S.” but some independent platforms with strong profiles could be options, according to Chris Green, president, Remington. The focus will be on the same segments Remington prioritizes in the domestic market: upscale and above, noted Remington CEO Sloan Dean. “We like swim lanes that aren’t commoditized,” Dean said. “Size matters; scale matters. With 30% of hotels still unbranded, we can look at M&A and management.”Fresh solution to build out the capital stack: If you haven’t though about commercial property assessed clean energy financing (CPACE), it’s time to reconsider, said Mat Crosswy, president and principal, Stonehill. The commercial real estate direct lender, which is an affiliate of Peachtree Group, recently completed $1.2 billion in investments through loan originations and CPACE. “CPACE is often misplaced in the capital stack,” he said. "It can reduce the cost of capital on projects as interest rates continue to rise. Typically, there is no payment for two years and, when repayment begins, it is part of the real estate tax."“We've seen is a 200% increase in CPACE over last year, primarily as bigger investors pair up with operators to get into this space. ESG is becoming a focus for everyone,” added Crosswy.Other news made at ALISJLL said first-time buyers at 16%: JLL Hotels & Hospitality Group reported two of the three global regions saw increased hotel investment volume in 2022 – the Americas and APAC. Global hotel investment volume reached $71.9 billion, only a 2% decline relative to 2021. The select-service sector accounted for 34% of single-asset global investment volume, its highest proportion ever, with the Americas and EMEA seeing notable growth. Private equity continues to be the largest acquirer of hotel assets globally and 16% of last year’s global investment volume was generated by first-time hotel buyers, predominantly comprised of family offices and high net-worth individuals.Marriott pipeline update: Marriott International deal signing in 2022 averaged two deals a day, reaching 726 management and franchise agreements, an increase of 21% over 2021 and representing nearly 108,000 rooms. In addition, Marriott’s City Express transaction, announced in October 2022, is expected to add around 17,000 rooms. Conversions contributed 20,500 rooms, or approximately 20% of rooms signed. Half of the 2022 rooms signed were in international markets, including key growth markets such as India, Saudi Arabia, Mexico and the Caribbean. The company’s global development pipeline totaled over 3,000 properties representing more than 496,000 hotel rooms at the end of the year, excluding the City Express rooms.During the year, Marriott added 394 properties, representing more than 65,000 rooms on a gross basis, growing the system 4.4%. Including deletions of 1.3% , net rooms increased 3.1%. Excluding the impact of the company’s exit from Russia, the deletion rate was 0.8% and net rooms increased 3.6%. At the end of 2022, Marriott’s worldwide system consisted of nearly 8,300 properties and roughly 1.5 million rooms in 138 countries and territories.Hay Creek in Colombia: Hay Creek Hotels and Restaurants, a subsidiary of Victory Hotel Partners, announced a joint venture with Royal Property, a company that owns and operates independent and boutique hotels in Central America and the Caribbean. Royal Realty currently operates The Charlee Hotel and Luxé by the Charlee in Colombia, with an additional property slated to open in 2023. The new JV will focus on acquisitions and development throughout Central America and the Caribbean. This strategy will be focused on third-party management and JV opportunities.Yotel to KSA: The Yotel brand has announced its first hotel signing in Saudi Arabia with the 2025 scheduled opening in Oxagon, which will be the home of advanced and clean industries in NEOM, Saudi Arabia.Numbers to know: 2023 will continue the trend of as first-party bookings surpass once-indomitable OTAs for the second year in a row.