A flash survey of members of the Lodging Industry Investment Council found confidence in a recovery in the hotel investment market within a year of normalized performance following the impact of the coronavirus COVID-19.
Denver, CO -- The members of the hotel industry’s preeminent think tank, “LIIC – The Lodging Industry Investment Council,” completed a flash survey Sunday March 15, 2020, to take a snapshot of the current state of the hotel investment market in light of COVID-19. Altogether, the members of LIIC represent direct acquisition and disposition control of well over $60 billion of lodging real estate.
The hospitality industry’s most influential investors, lenders, corporate real estate executives, REITs, public hotel companies, brokers and significant lodging equity sources are represented on the Council. LIIC serves as the leading industry think tank for the lodging real estate business (www.liic.org).
Mike Cahill, LIIC co-chairman, produced this flash survey (www.mikecahill.com). Mr. Cahill is CEO and Founder of HREC – Hospitality Real Estate Counselors, a leading hotel and casino brokerage and advisory firm (16 offices nationwide) specializing in lodging property sales, debt financing, consulting and litigation support (www.hrec.com). James Few and Christian Walsh, Associates in HREC’s Denver office, assisted throughout the process.
COVID-19 Hotel Investment Survey Results:
- Property Level Hotel Cash Flow to Rebound Quickly: LIIC Members believe that hotel asset level NOI impact from COVID-19 will normalize (a return to 2019 cash flow performance) rapidly. Of particular note is 27% anticipate full recovery within six months, and an additional 48% believe full normalization will occur within six months to a year. As a result, 75% believe full normalization within a year.
- Buyers Taking a Deep Breath to Assess: While 64% have put pencils down and have stopped submitting LOI’s (Letter of Intent to Purchase), the remaining 36% are going forward viewing less investor competition as a great opportunity. Roughly two-thirds of LIIC believes in moving forward and continuing to underwrite new hotel investments under more focused and revised parameters.
- Temporary Bid/Ask Spread Issues: 75% of LIIC believes that hotel investors with assets under contract are entitled to a re-trade on price based on short-term cash flow impact. If you have a hotel under contract for purchase, positive news is that 72% believe the closing date should simply be extended. A brave 16% are still proceeding directly to closing. Sellers with product on the market are adjusting ask prices downward already according to 73% of survey responders. We are seeing an uptick from creative Sellers looking to close sales, including offering seller debt financing and preferred equity to buyers.
- New Hotel Investment Parameters: 79% of new hotel purchase and sale contracts (PSA’s) are anticipated to have debt financing contingencies added. Also, expect longer due diligence periods in any new PSA’s executed in coming months.
- Debt Refinancing: Currently, the CMBS (Collateralized Mortgage Backed Securities) market has stalled, with 83% reporting an inability to get debt quotes. Historically low hotel interest rates are anticipated to survive the COVID-19 pandemic and 39% believe we will see an increase in refinancing activity later in 2020. Of concern is how hotel appraisers are recognizing current values in appraisals. 40% of investors believe appraisals are still coming in higher than lenders and buyers are using in loan underwriting.
- Current Top Three Threats to Hotel Investment:
II. Anticipated Economic Recession
III. Decrease in Domestic Corporate and Leisure Travel
Interesting how the virus Black Swan has stopped references to the previous top investment concern of new hotel supply additions.
- Government Commandeering Hotel Assets: Of compelling note, 43% of LIIC anticipates issues with the Federal Government and/or State Governments potentially commandeering hotels for use in housing virus inflicted patients or other related purposes.
- Big Picture: Forecasted Hotel Transaction Levels for Calendar 2020: 50% believe the total dollar volume of U.S. hotel transactions in calendar 2020 relative to year-end 2019 will decrease up to 25%. 34% believe the COVID-19 impact will be greater and produce a 25% to 50% decline in dollar volume. The total number of assets forecasted to be sold by year-end 2020 is anticipated to decline up to 10% by 20% of responders, 10% to 25% by 30% of LIIC and 25% to 50% by 32% of survey participants. Compared to post 9/11 when the U.S. economy was already headed into a recession and transactions/lending virtually stopped, this is considered positive.
- U.S. Academically Facing a Recession in 2020: Assuming a recession is academically defined as “two consecutive quarters of negative GDP growth” hotel investors believe 2020 is the recession year. While an end to the greatest 10-year bull run in hotel investment history, positive sentiment exists that the overdue unfortunate reset will be the beginning of a new exciting upcycle due to a relatively quick rebound.
For additional information, please contact:
LIIC – The Lodging Industry Investment Council www.liic.org
LIIC Co-Chairman - Mike Cahill, CEO & Founder, HREC: email@example.com
Ms. Ashley Hunt, Director of Marketing, HREC: firstname.lastname@example.org
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