As part of the Americas
Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked CBRE’s
Bill Grice nine timely questions as we prepare for the 22nd annual
event January 23-25, 2023, at the JW Marriott/Ritz-Carlton Los Angeles L.A.
LIVE. Following are his responses.
ALIS: How has inflation and
the threat of a recession affected the U.S. hotel transactions market?
GRICE: Recent economic and
geopolitical uncertainty resulted in a temporary moderation in hotel
transactions over the summer, but we see strong momentum already building,
indicating a reacceleration in transaction volume is likely.
ALIS: Most forecasts show
supply growth checking in at about 1% each year for the next two or three
years. How will that affect transactions volume?
GRICE: With new supply growth
for the short to intermediate term trending below the long-term industry average,
hotel investors have more reason for optimism going forward.
the message to hotel owners, investors, and developers from the lending
community in general as 2023 approaches?
is a disconnect between higher interest rates paired with conservative lender
underwriting and consistently improving lodging performance fundamentals. Given
lodging’s relative outperformance versus other commercial real estate asset
classes, lenders will ultimately be compelled to deliver more efficient
financing executions than are currently available.
ALIS: What is the outlook for
CMBS markets as the recovery from the pandemic continues to solidify?
GRICE: CMBS markets provide important
liquidity to every commercial real estate property vertical and recent dislocation
in the debt capital markets has delayed numerous new CMBS financings. Regaining
momentum and a return to increased CMBS transaction volume is likely to occur
once the market realizes more stability.
ALIS: What hotel asset type
do you think will be the most popular to trade hands in 2023? Why?
GRICE: The assets that are
most likely to trade hands in 2023 will be those where either value has fully
recovered relative to 2019 or there is time pressure due to investment fund
life, debt maturities, or other drivers. Over the past year, the majority of transactions
have involved leisure-oriented properties and high-performing limited-service
hotels where valuation met or exceeded 2019 levels.
ALIS: What’s the most common
question you are hearing from clients, and how do you respond to it?
GRICE: The most common
question we field from our clients is whether the broad-based increase in leisure
ADR over the last 12 months is sustainable. Overall, we believe the reset in
ADR for leisure properties represents a new normal supported by positive demand
demographics paired with increased experience focused spending and broader corporate
adoption of working remotely.
ALIS: The ongoing labor
shortage has presented issues for hotel owners. How has it impacted
transactions, and do you see that impact growing or shrinking during 2023?
GRICE: Although labor
shortages can pose a significant operations challenge for some hotel owners, it
has not had a noticeable impact on hotel transactions to date and we do not anticipate
it will be a major factor driving transaction volume in 2023.
ALIS: What’s the most under-estimated challenge the hotel industry
faces, and why?
GRICE: Development and renovation costs have risen dramatically
driving two important outcomes. First, new supply is likely to remain
constrained for the short to intermediate term as development costs have become
prohibitively expensive in many markets. Second, property renovations can be materially
more expensive and take longer to complete, which must be accounted for by
ALIS: What’s the most under-estimated opportunity for the hotel
industry, and why?
GRICE: Historically, hotels have consistently generated real
inflation adjusted ADR and RevPAR growth across numerous economic cycles. Given
increases in the CPI since 2019, we believe there is still significant runway
for incremental ADR and RevPAR growth, which many hotel investors may be