PHOENIX – For the 2,900 people at The Lodging
Conference in Phoenix this week it almost feels like time is standing still –
and maybe deals, too – as the itchy gathering waits on the potential impact of
the Presidential election, the next moves by the Federal Reserve, another
hurricane bearing down on Florida, and considers the ongoing geopolitical issues
in the Middle East, the Ukraine and elsewhere.
The consensus is that 2024 has been a year of working hard
to maintain gross operating profits, better positioning assets for sale and continued focus on conversions as development simply remains too expensive and challenging, at the least.
The bid-ask spread on deals is closing but the cost of capital
continues to impede transactions with the first 50 bps cut by the Fed already baked
into deals. Interest in deals is high, but inventory remains thin. Negative
leverage on assets also continues to make it tough for deals to get done.
What will trigger more deal activity? Lower rates, an election outcome either way, loan maturities, CapEx
issues, and CMBS getting creeky.
Economist Bernhard Baumohl took to the stage on Tuesday at The Lodging Conference and
predicted further 25 bps interest rate cuts in both November and December. That
was music to the ears of panelist who followed.
Baumohl posited three questions as he pondered the outlook
for 2025 and beyond:
- How much more will the Fed lower and how quickly?
- What will be the implications of geopolitics on
issues such as supply chain?
- How will the election outcome impact the
economy?
“I’m all in for a soft landing with inflation coming closer
to the Fed’s target of 2%,” Baumohl said.
At the same time, he hedged by saying an escalation of war
in the Middle East could cause oil prices to spike, which could cause the Fed
to wait and see before further lowering interest rates.
He also warned about a further pullback in consumer
spending, citing data showing bigger amounts of consumer debt being held on credit cards.
He said spending on lodging slipped in second quarter of
2024 for first time since the depths of pandemics. That said, Baumohl added that lodging fundamentals generally remain strong.
The election will set the stage for how the economy will
perform in next few years, Baumohl added. He wasn’t particularly bullish on
either candidates’ platform, suggesting under Kamala Harris U.S. debt could
increase by $2 trillion in the next few years. Under Donald Trump, Baumohl said his tariff strategy to cover tax cuts would be very inflationary. He also warned of
further wage inflation with Trump’s immigration strategy.
He added that while Trump's platform will generate a stronger economy than Harris's in 2025 and 2026, Harris's platform will be better for the economy in 2027 and 2028.
Baumohl concluded by saying that the Fed won’t be as
aggressive with rate cuts under Trump’s platform and that it will likely cut more under Harris.
All food for thought.