If you’re not buying, selling or refinancing a hotel this year, you’re missing out, according to Hunter Hotel Advisors COO Lee Hunter. A survey of hotel owners suggests that most agree.
ATLANTA—The 2017 business climate is favorable enough to motivate hotel owners to buy, sell or refinance assets, according to a survey conducted ahead of the 29th annual Hunter Hotel Investment Conference.
More than 60% of owners who responded to the survey said they are either somewhat likely to (27.6%), very likely to (27.6%) or definitely will (6.3%) buy a hotel this year.
Fewer said they were in a position to sell a hotel in 2017—with 21.2% somewhat likely, 29.7% very likely and 2.1% with definite plans.
As far as refinancing a hotel, only 14.8% of owners said they definitely will do so, while 23.4% said they are somewhat likely and 19.1% are very likely to do so.
“Everybody’s situation is different, but I do think you need to be doing one of those three things,” said Lee Hunter, COO of Hunter Hotel Advisors, host of the 22-24 March conference. “If you’re not, you’re missing out on an opportunity.”
Grey Raines, president of Raines Hospitality and managing partner of SpringBridge Development, said his company this year will add three hotels—two new builds and one management contract—to bring its portfolio to 11 hotels in South Carolina, including six under the Marriott brand, and the Hotel Florence, a historic redevelopment. SpringBridge is based in Florence, South Carolina.
“We have actually just completed a refinance of one of our existing properties,” said Raines, one of the surveyed owners. “So two of the three (buying and refinancing) will definitely happen. At this time, we’re not planning to sell. … We are in the market on the acquisitions side, and I think that has shifted from purely a seller’s market to a neutral ground. We’re underwriting more acquisitions than we were, say, three years ago.”
A separate survey of nonowners showed more optimism, with nine out of ten respondents predicting their business to either perform about the same as last year (50%) or to be more successful than last year (41%).
Among the sources of optimism for survey participants is the administration of U.S. President Donald Trump.
A majority of hotel owners expect the administration to have a positive effect on the tax structure (84%), the regulatory environment (76%), and labor and employment issues (67%). The nonowners felt largely the same, with 70% expecting a positive effect on taxes, 78% saying the regulatory environment should improve, and 50% foreseeing positive resolution of labor and employment issues.
“Based on the Trump administration’s recent policy actions, I concur that all indications show there is an effort on President Trump’s part to reduce regulations and change the corporate tax structure, which will be more favorable for corporations,” said Mary Beth Cutshall, SVP of acquisitions and business development at Hospitality Ventures Management Group, who was among the surveyed hotel owners. HVMG’s portfolio includes 5,996 guestrooms at 31 open hotels in 16 states, and four hotels in development representing another 667 rooms.
“Tax cuts could result in a short-term boost in economic growth and higher interest rates,” she said. “I’m more neutral when it comes to labor and employment issues. I’m taking a ‘wait-and-see approach’ until more details are unveiled on the (Affordable Care Act), the immigration ban and other important labor and employee issues.”
Overall, HVMG is “expecting business to be more successful compared to the prior year,” Cutshall said. “A number of our hotels are forecasted to show significant increases in (revenue per available room), and the company’s overall portfolio will be up.”
“What everyone fails to realize is … the rate of growth has slowed, but that’s still positive,” Hunter said. “That’s a good sign for our industry, especially considering all the new supply that’s going to be coming online.”
Raines said he’s definitely in the glass-half-full camp.
“Whether growth is 2% or 7%, we’re excited to see growth,” he said. “There’s been a lot of talk about being at the end of the cycle, (but there’s) hope that we’re going to be able to stretch a few more years out of this cycle. I think we’ve got more time on our hands to get things built, get things stabilized and batten down the hatches for the next downturn.”
Of course, the picture painted by the surveys is not all positive.
Most of those surveyed believe the Trump administration will have no effect or a negative effect on interest rates, with only 16% of owners and 15% of nonowners saying the effect will be positive.
There was at least one question in the surveys that hotel owners and nonowners did not agree on: What will have the greatest impact on hotel rates and occupancy in 2017?
On the owner side, 65.9% listed new development as their top concern, while 51.7% of nonowners gave the strength of the U.S. economy as the biggest factor.
Hunter said this difference is a matter of perspective.
“The nonowners, a lot of those responses, I’m guessing, are brand development guys,” he said. “They’re not worried about specific markets, not worried about new supply in Nashville. … They’re worried about the country in general … about being able to get new product on the ground. … On a national basis, the larger corporations will say (supply growth) is at an acceptable historical range.
“But if you’re (a hotel owner in Nashville), where within 100 yards in any direction there are four hotels being built, you’re definitely concerned with new supply.”
That is the case for SpringBridge Development, Raines said, which will have to adapt to four other hotels coming into the Florence, South Carolina, market.
“Fortunately, some of those are going in at an (interstate) exit that we feel is dropping off, and our interstate exit and downtown is really primed to continue to grow,” he said. But, “we’re definitely concerned with how many brands are out there, and how we integrate and play nice with all the other brands.”
Hunter described the hotel industry as “cyclical” and a “street-corner business,” which is part of the industry’s past, present and future.
“The new supply, while it’s not been an issue in the last few years, is now becoming more of an issue,” Hunter said. “And it’s a market-by-market issue. There may not be a ton of new supply in Chattanooga, Tennessee. But Nashville has got a bloody ton of it. It’s hard to paint with a broad brush. … Just because my street corner is doing great doesn’t mean yours will.”