Investors, developers take forward-looking view at NATHIC

Speakers on NATHIC’s financing panel agreed that now is a good time to borrow money for hotel projects.

Speakers on NATHIC’s financing panel agreed that now is a good time to borrow money for hotel projects.


Chicago –The annual North America Hotel Investment Conference brought hotel owners, investors and developers to Chicago for two days of speakers, panels and networking, all characterized by frank, “no-topics-off-the-table” discussions. 

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Executives on the “Current Events with the Bosses” got the event kicked off with a discussion on the short-term future of the hotel industry. 

“2009 and 2010 were tough years,” said Dave Johnson, CEO of Aimbridge Hospitality. “We are moving rates now and have caught back up. There is unconstrained demand in many markets so it’s all about: how can we push rate? How aggressive can we be market to market?”

Not only are rates climbing, development is also seeing an uptick as financing becomes more available for new-build projects, said Chip Ohlsson, VP of development for Starwood Hotels and Resorts Worldwide. “We are now looking at bigger projects,” he said. “Money and financing are jumping back in.”

Best Western International CEO David Kong shared the sentiment: “There is an uptick in new construction,” he said. “Financing is getting easier, but it’s all about how we continue to execute.”
Said Steve Miller, SVP of development, Wyndham Hotel Group, “Our mission is to get back into major markets after many of our hotels were sold by Blackstone.”

For Kong, it’s about quality not quantity. “Globally, there is interest in South America and Asia,” he said, pointing to the growth in middle classes. Best Western’s international portfolio, Kong said, is almost the same size as its U.S. one.

Financing

A panel of lenders and borrowers dug deeper into financing forecasts for hotels, largely agreeing that now is a good time to be borrowing money for hotel projects. 

Michael Medzigian, chairman and managing partner of Watermark Capital Partners, said he’s bullish for the next few years on supply and demand and that his firm will continue to be active buyers. “There are a lot of opportunities we’re seeing,” he said. “On the debt side, it’s more aggressive now. I know a number of large lenders are saying they’ll be conservative about what they will do or not do. People are still looking at debt yields and I think there’s a lot of capital.” 

Scott Kaniewski, SVP at HREC-Hospitality Real Estate Counselors, cited examples of moving assets in the Midwest. “Because values are still appreciating, lenders are trying to build share or protect their market share,” he said. “An aggressive loan today, 12 months from now probably won’t look so aggressive, based on the markets.” 

William Sipple, executive managing director of HVS Capital Corp, said challenges owners have today in financing often come down to value-add deals. “How do you get those deals done, because it’s difficult to find that level of bridge financing that will accept the story you’re trying to sell,” he said. “It depends on what market you’re in and what you’re trying to finance.”  

Construction pipeline

JP Ford, SVP of Lodging Econometrics, and STR SVP Jan Freitag shared industry performance numbers and forecasts, focusing particularly on development pipeline statistics. 

“Two-thirds of all guestrooms under construction are in upscale and upper-midscale segments,” Freitag said. “They are easy to build and easy to finance. Many are in tertiary markets. You’ll see a lot more of this and it will be interesting to see how it turns out.” 

Michael Medzigian, chairman and managing partner of Watermark Capital Partners, seated left, said during NATHIC’s financing panel that he’s bullish for the next few years on supply and demand.

Michael Medzigian, chairman and managing partner of Watermark Capital Partners, seated left, said during NATHIC’s financing panel that he’s bullish for the next few years on supply and demand.

 

Ford’s data corroborated Freitag’s. “A lot of these projects are in the 125- to 150-room range, select-service hotels, favored by developers,” Ford said. Lodging Econometrics’ data called for 147 midscale segment hotels to open in 2013 and 189 in 2014, and 224 upper-midscale hotels to open in 2013 and 259 in 2014. 

NATHIC is owned and produced by Questex Media Group, parent company of Hotel Management. Visit www.nathic.com for more information. Turn to page 82 for more photos from November’s event.

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