Hotel Investment Market: Where It's At and Where It's Going

SAVANNAH, Ga. - Jan. 26, 2021 - PRLog -- It would be an understatement to say that the hotel industry is experiencing some dark days. In fact, some experts like Georgia-based hotelier Charlton Claxton know that hotels are downright reeling. And unfortunately, no one is to blame - no irresponsible investments or aggressive purchases. The predicament the hotel industry finds itself in is entirely due to the coronavirus pandemic, and it seems that it can't get any worse.

Striking while the iron is hot is a brilliant strategy during these uncertain times, but it's vitally important for any would-be hotel investor to understand 1) where the current state of the hotel investment market is at now, 2) where it's going, and 3) where opportunities can be found.

Where It's At
Nearly every subsector of the hotel market has been affected by the coronavirus and its subsequent recession including luxury, economy, business, and tourism. Large hotels in urban cities with many meeting and convention spaces have been impacted the most, and the smaller economy and interstate-oriented hotels have been impacted the least.

At the same time, there is one subsector that has performed well during the pandemic: extended stay properties. Theoretically, this is probably because extended stay units offer in-room kitchen facilities, which allows people to travel, while minimizing their interactions with others. In other words, they are ideal for social distancing.

Where It's Going
With many people working from home for almost a year, the need for monthly or quarterly in-person meetings will set business travel up for a well-needed rebound. But companies will have a difficult time forecasting their 2021 lodging expenditures. They may have a smaller travel budget for 2021 than 2019 or 2020, but by 2022, their lodging budgets should be back on track.

Opportunity for Hotel Investors
The question remains: is this the moment of opportunity that hotel investors have been waiting for? Almost, but not right this second.

That's because there's no guarantee that a down market equals immediate cash flow. So hoteliers like Claxton must be patient. Deals under 10 to 15 million dollars will mainly be conducted on online auctions. But even situations where the borrower wants to give back the deed to the lender, and the lender is willing to take it...that process still takes time.

When it comes to evaluating potential investments, investors need to realize that cap rates can be less relevant to hotel properties. Instead, investors should be looking at 1) the stability of the demand for that particular hotel, 2) the likely speed of recovery of that demand by sector, and 3) the capital needs that the property has.