Market volatility is creating challenges for the hotel industry, according to panelists at the Hunter Hotel Investment Conference Tuesday.
"What the new administration is trying to accomplish with tariffs are factors that could potentially drive us into an economic recession, which isn't necessarily bad as it could help bring rates down," said Greg Friedman, managing principal and CEO of Atlanta-based Peachtree Group.
Debt challenges and volatility are going to make 2025 a really tough environment to operate in, Friedman continued. But on the flip side, Friedman expects the transaction market to open up for him to be able to buy assets. "That's what gets us excited," he said.
Market Overview
Friedman was part of the Market Overview: Financial analysis and forecast panel, which also included Daniel Peek, president of JLL Hotels & Hospitality Group; Teague Hunter, president and CEO of Hunter Hotel Advisors; and Robert Webster, vice chairman of CBRE. Mitch Patel, founder and CEO of Vision Hospitality Group, moderated the panel.
Patel pointed out that from an owner perspective, revenues have grown but expenses have grown at a higher rate—"the costs of goods, insurance, property taxes in many cases ... and then, of course, the debt environment we're in currently. If you have a floating rate, literally your debt just doubled in the last three years," he continued.
Giving advice to those owners, Friedman suggested hoteliers be proactive. "This environment is taking longer to transact," he said. "Although there's a lot of lenders out there, most banks have pulled back their exposure to commercial real estate in general, as well as hotels. There are also a lot of private lenders but everything does take longer."
Working with your current lender may be the best bet. "Cash flows have come down from some but debt cost is higher. So there [are] a lot of cases we're seeing where people need to actually inject additional liquidity. That's why I've recommended [being] very proactive, being very constructive and trying to work with your current lender," he continued.
While there may not be many buyers and sellers in this current deal environment, they are there, said Hunter.
"Our sellers today are the institutions ... the big boys who are at the end of a fund, who are at the end of a life, who either have a [property improvement plan] or have debt maturity or have some reason that they need to sell and they’re all but at capitulation,” he continued. “They’ve been fighting this for three years … I’ve been telling them today is better than tomorrow. We’ve been right for the last two and a half years, and now they’re like, ‘Fine. Just sell it. Do what you’ve got to do.’”
Development
New development has been muted as well. Webster said it doesn't make much sense to build today, especially in the upper end of the market. There are, however, always outliers.
The biggest hurdle to getting deals done in this current environment, Peek said, is the lack of big mixed-allocation private-equity buyers in the U.S. hotel market. Peek said private equity has been active in other markets outside of the U.S.
“What you didn’t see [over the past few years] and still haven’t seen is big mixed-allocation private equity being active. The Blackstones, the Brookfields, etc. Why? Because they like something else better. They’re very active in data centers, industrial or multifamily,” he said.
Peek said there is a “hole in the doughnut” regarding the type of asset that currently isn’t selling in the U.S.
“The $50-$250 million full-service hotels are not trading. Those are the hotels that have big PIPs and they’re kind of heavy. They’re very much relying upon financing because a lot of it is private equity … A lot of those assets where the PIP used to be $30,000 a key and now it’s $75,000 a key, and they’re late-cycle recoveries, and they don’t have the higher cash flow that the select-service assets have."