There’s a healthy amount of activity going on in both the deals and capital markets. Successful hotel investment, however, involves accurately reading market perceptions and realities. While hotel owners, operators, developers, brokers and lenders face a number of hurdles, experts agree that optimism abounds.
I spoke with Michael Cahill, CEO and founder of Hospitality Real Estate Counselors (HREC), a leading real estate investment banking and advisory firm specializing in the lodging and gaming industries, to solicit his insights. Active in the organization’s brokerage and consulting divisions, he has counseled more than 3,000 lodging and gaming properties throughout North America. An original co-founder of the Microtel lodging concept and veteran IHIF Summit Series delegate, he co-chairs the Lodging Industry Investment Council (LIIC), a think tank composed of leading hotel investment executives who collectively represent hundreds of years of hotel deal experience.
HM: What industry trends are having a big impact on hotel real estate investment?
Cahill: One unique trend in this hotel investment cycle is the diversification and stratification of buyer types into specific types. From public REITs to small private equity funds, buyers are more disciplined and focused on a specific type of deal. For example, some money will only chase urban gateway cities, while others are looking for college towns, regardless of whether the institution of higher learning is in a tertiary market. Certain equity players will chase yield, regardless of hotel product type and location, while others may pursue only select-service lodging products with a RevPAR over $100. In past markets, buyers simply viewed debt as “borrow as much as a lender will lend until you, too, can own a hotel for no money down.” For the first time, I am seeing some buyers saying “no” to the extra leverage and saying they don’t want to mortgage their hotel investment to the max.
HM: What are some key insights on the investment space from your Lodging Industry Investment Council membership?
Cahill: LIIC members believe that we may be in for a longer, prolonged up-cycle compared to past cycles. A prolonged up-cycle will provide all players with a more forgiving and larger foundation to make money. The council, as a whole, believes that hotel values are continuing to increase, directly benefiting both buyers and sellers.
HM: If you could offer hoteliers one piece of advice, what would it be?
Cahill: Push rate! Don’t be afraid to ask consumers to pay what your hotel product is really worth.
HM: What’s your advice for students considering the hospitality industry?
Cahill: Embrace and jump in feet first! If you can master the hospitality industry, you can achieve success in almost any type of business. Whatever task you are assigned, do your best. Be open-minded, think of your brain as a sponge and absorb all that is around you. Retain what you learn from the best and be smart enough to also overcome the negative.
HM: What makes an industry event good?
Cahill: A great industry conference, like the North America Hotel Investment Conference, strikes a delicate balance between education and networking. On the plane or car ride home from Chicago, you will not only possess new, unique and intellectual takeaways, but a couple of new industry contacts for an immediate business deal when you get back to the office. And, of course, the one-of-a-kind happy hour with LIIC is essential to a great hospitality conference and is only available at one industry conference: NATHIC!