The recent 29th Annual Meet the Money National Hotel Finance and Investment Conference, co-sponsored by HREC Investment Advisors and Jeffer Mangels Butler & Mitchell, provided numerous insights from hotel investors, managers, lenders and the like. From the state of the industry to financing trends, this is what U.S.-based hoteliers need to know.
When it comes to where the U.S. hotel industry is in the cycle, performance was top of mind. While revenue per available room was up 2.1 percent at the end of the first quarter of 2019, that growth came at a slower pace than seen in previous quarters. That said, 39 percent of hotel markets saw RevPAR decline year-to-date 2019. The good news, however: While HREC noted that trend is rising, it’s still not concerning enough to signal a recession.
Meanwhile, hotel transaction volume was down in the first quarter of this year (-36 percent) from the previous year’s quarter. However, HREC said the volume is on pace with 2016 and 2017. Meanwhile, cap rates are trending down, helped by lower interest rates and a healthy market.
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In regard to lending trends, commercial mortgage-backed securities underwriting has been in check, but more interest-only loans are being offered. CMBS volume is down and bond demand is strong, which has driven 10-year rates to multiyear lows (4 to 4.5 percent), according to HREC. Lending is also tightening with new borrowers unless they bring big deposits to the bank. Existing relationships with banks are paying off, however, as lenders offer appealing terms for these clients.
Investing in opportunity zones continues to draw attention to the industry. Major players in the industry are raising opportunity zone blind pool funds while individuals are developing single-asset investor funds, according to HREC. On the other hand, limits on EB-5 investor visa issuance have helped to stagnate EB-5 funding, extending the time it takes to raise capital for projects.
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Not surprisingly, labor concerns are still causing issues in the industry. Costs for this line item are up over the past five years, and hoteliers are looking for new ways to retain employees. Some solutions proposed at the conference include offering a year-end bonus, which is less expensive than rehiring and retraining new talent. Additionally, hoteliers look to offer training through videos on mobile phones in order to streamline the process and meet the demands of today’s workforce. Building a solid company culture as well as profit sharing were other suggested solutions to the issue. And because people generally leave companies when they aren’t satisfied with their superior, department heads should look to build loyalty with their team members.