[video transcript]
Hello, my name is Jan Freitag, and here is what’s on our radar for this month.
The publicly traded companies released their earnings, there was a mega deal in Florida, and I'm talking to the co-CEO for ACORE Capital about the state of the debt markets.
Let’s start with the RevPAR data that STR just released and just as a quick reminder that the comps right now are really, really easy because at the beginning of last year, we were impacted by the omicron variant.
So in January, RevPAR was up 27% and we expect similar strong results all the way through March of this year.
It’s earnings season and Hilton and Marriott gave positive commentary about group demand for 2023. Hilton is seeing tentative group bookings up more than 20% from 2022. And Marriott is seeing a similar booking pace, up about 20% from last year. We have talked about the need for people to get together in person and group meetings are just a very efficient way to do just that
The question, of course, remains if corporate transient demand will continue to recover or if it has basically stalled out at around 10% below where it was in 2019 results. So we keep looking at midweek, transient occupancy and ADR results to see if any of this recovery continues,
Speaking of market strength, especially on the group side, another high-end resort with 200,000 square feet of meeting space sold at a strong price. The Diplomat Beach resort in Hollywood, Florida was sold by Brookfield Asset Management to Trinity Investments and Credit Suisse Asset Management for $835 million. The 1,000-room property is currently branded as Curio but will undergo some renovations and then be rebranded as Signia by Hilton. The price was the single highest asset transaction since 2020.
Deals like this, of course, need financing and so I thought it was appropriate to sit down with the co-CEO of ACORE capital, Warren DeHaan, which is a large lender in the lodging space to talk about the state of debt market. ACORE has $21 billion of assets under management and they provide CRE debt, mezzanine and preferred equity.
How should hotel owners think about the debt market in 2023?
It’s an interesting time. I think you’ve got to look at this through a couple of different lenses. One it in the aggregate, the macro, we’ve seen some great performance in the hospitality industry, particularly assets that have demonstrated inelastic demand characteristics. And we’ve seen healthy growth both in the top line and the bottom line.
However, having said that: in the debt markets there are a couple of things going on. One is we’ve seen more conservatism in the bank markets and that’s really driven particularly by the continued regulation. Secondly, some of the banks are allocated to commercial mortgages. And thirdly, the capital markets have not been operating efficiently like they would be in a normal course of business and that’s really driven predominately by the fact that there hasn’t been rate stability from the Fed and when there is rate stability we’ll see greater velocity of buyers come back into the market and create more liquidity and in so doing help this large sum of the backlog of loans that are sitting on the banks’ balance sheets as they get secure ties in one way, shape or form.
So the other thing that we’re facing that’s problematic from an under-writing perspective and from the debt perspective is what is this going to look like if we do in fact go into a recession and, for me, what we’re looking at at ACORE is we’re really focused on the health of corporate earnings and the behavior of CEOs and we’re also really focused on the health on the consumer. So what are the decisions that the consumer or the CEOs of the companies going to make as it relates to travel if we do in fact go into a recession?
So those are two categories: one is a period of reduced liquidity and highest electivity by lenders and secondly is how do we as lenders underwrite a potentially inevitable reduction in demand?
“An inevitable reduction in demand “. Thank you, Warren very much for your comments. He and I chatted a little bit more and he freely admitted that as a lender he has to be conservative and always has to protect the downside. I think it's through this lens that he has this, call it, realism as we enter 2023.
I thought it’s only appropriate then to end with a confidence survey that STR conducted earlier this year. Operators were asked: “On a scale from one to ten, how do you rate your confidence” and you can see that in the short term, their outlook seems to match Warren’s perspective. But also, that hoteliers are more positive when looking further out. Hope springs eternal, right?
Thank you so much for watching, please email me with questions and until next time, I wish you well, I wish you health.