Get ready for “Business Sense: Investor Outlook on the State of the Industry” at HD Expo + Conference 2023 in Las Vegas, which kicks off next week. (There’s still time to register!)
For the panel, I will be joined by friends and colleagues Tiffany Cooper, head of development for North America and the Caribbean for Kimpton Hotels & Restaurants; Kevin Davis, Americas CEO in JLL’s Hotels & Hospitality Group; and Allison Reid, Aimbridge Hospitality’s chief global growth officer.
We will address the challenges faced by investors today as they attempt to navigate a very cloudy landscape with no precedent. Expect uncensored discussions about the capital markets including interest rate landscape, credit spreads and cost of borrowing, the impact of failed banks on borrowing costs, and leverage levels. We will also offer insight into how deals are getting underwritten and analyzed today and how that differs by asset type, by geography, and by sponsor or developer. We would be remiss not to discuss the impact of inflation on hotel costs, labor and wages, but also on average daily rates and profitability.
We will also address the rapid rise in short-term interest rates. While current rates are not too far off from historical rates, they are almost 5 percent, or 500 basis points, higher than a year ago, leading to issues for any borrowers with floating-rate adjustable debt, and leading to future refinancing uncertainty for those with fixed-rate debt, as the cost to refinance in the future will be substantially higher.
In addition to the rise in rates, credit spreads have also increased as lenders find hotels—especially certain types, such as major conference centers in urban markets—to be especially risky. As a result, many hospitality lenders have stopped making hotel loans while others may still do so at higher rates but lower leverage levels. That translates into greater equity requirements and lower financial returns.
Our panel will offer views on how investors and developers are thinking about different markets and how those markets are expected to perform in a post-COVID environment. Will heavy leisure markets retain their occupancy levels and what were likely record-breaking ADRs, or will such rates revert closer to historical norms? We will address how work-from-home policies may impact demand and occupancy levels in different types of markets such as major urban markets, resort locations, and the impact on group, corporate, and leisure transient.
Finally, we will offer insights on the highly inflationary environment and the operating challenges that has created in executing PIPs, hiring staff, purchasing food, and simply operating a hotel. How investors factor in the inflationary factors and forecast the future is a big debate in the industry.
Just when we thought that inflation might be coming down, and the outlook may be more normal, we had to brace ourselves for the rapid downfall of Silicon Valley Bank, Signature Bank, a short-term bailout of Republic Bank, and the massive takeover of Credit Suisse by UBS. These developments cause greater uncertainty and caution amongst all players in the capital markets. It remains a challenging environment.
Stay tuned and see you in Vegas!
Hear more from Jonathan:
Business Sense: Investor Outlook on the State of the Industry
May 3rd, 12:30–1:30 p.m.
Location: HD Park, Booth #2873
