Investors and operators who are “passionate” about the hospitality industry will continue to drive the development of new stock, according to a panel of development chiefs speaking at the NYU International Hospitality Industry Investment Conference in New York on Tuesday.
Julienne Smith, chief development officer, IHG Hotels & Resorts said: “I caught up with an owner yesterday who thought about pivoting to logistics investments – last mile developments - during the pandemic, but went straight back to hotels. The pain of interest rates today and the costs is not fun, but tried and true developers who have been through downturns are still sticking with hospitality because that is their core business.”
Added Agnès Roquefort, chief development officer, luxury & lifestyle, Accor Management: “Globally I find owners very bullish, but we have to be passionate as well. In Europe we can see many new investors joining the market to diversify their portfolio. We want to build on this positivity.”
Risk of distress
Cautioned Bill Fortier, senior vice president, development Americas, Hilton HQ: “There are definitely a lot of owners that are in distress today. The problem is that commercial real estate has a bad name right now, mostly due to office markets. Owners in general are having a tough time.
“We are dealing with some owners that actually have to sell good hotels to stop others from being defaulted or being taking back by the bank. It’s going to require interest rates to come down and the reversal of the office crisis. It’s hard to develop new buildings, and although conversions are possible, they are very expensive to do.”
David Pepper, chief development officer, Choice Hotels International added: “Operators are actually in really good shape right now - RevPAR is doing fine, and there’s been less than 1% growth in supply, which are both good from an operational standpoint.
“There is some distress out there, but they can’t find buyers for those assets. When interest rates start to fall again, the buy-sell spread will start to close. You are right that a lot of capex needs to be done. At some point they are going to have to put the money in, but many are waiting for that buyer to put up the right price.”
Rates to stay elevated
Added Noah Silverman, global development officer, US & Canada, Marriott International: “I don’t know anyone who expects rates to go to zero again. But the relative stabilisation of rates last year had some positives – owners could start to underwrite based on the new environment.
“As for today’s challenges, they’re really not so bad – but development isn’t happening at the pace we were accustomed to in that decade of growth. The reality is that in this market we never really exceeded the historic average of new supply even at peak. So, we’re doing well now because we didn’t have the typical overbuilding of previous cycles.”
He concluded: “There is no doubt that some decline in rates would help. But in this environment, we continue to benefit from committed folks in the hospitality space.”