Hotel Management, with parent company Questex Hospitality + Travel and the Asian American Hotel Owners Association (AAHOA), presented the third Hotel Optimization virtual event on 27 January. The day’s first panel discussed the benefits of brands, and whether it is worth staying with their new slimmed-down costs.
Stick or Twist
As the pandemic drags on, many investors are unable to pay their loans and banks are struggling to continue extending credit.
Bank balance sheets are in better shape now than they were during the early stages of the great financial crisis, said Sarang Peruri, COO, Oxford Capital Group and partner, Oxford Hotels & Resorts, although banks are being “extremely selective” in what debt they take on. “It has to be the markets that they like with the sponsorship they like.”
Brian Waldman, EVP of investments at Peachtree Hotel Group, said the company’s Stonehill debt fund is seeing strong activity in what he calls “runway capital,” where a good borrower has a good asset that isn’t overleveraged—but the buyer lacks the cash liquidity reserves needed to keep the asset going. “We can come in in a preferred position and provide some additional ‘runway capital’ to get to the other side of this,” he said.
A Crowded Market
But what is appealing to a lender in this market? Half of HEI Hotels’ portfolio is core branded hotels while the other half is in the soft brand and independent space, said Rachel Moniz, EVP of operations. “There are still customers buying in their lanes, if you will,” she said. Brand contribution is “relatively high” at 55 to 60 percent of the contribution—“but it's all leisure,” she said. “Consumers are more attracted to the soft-branded hotels that are in markets that maybe aren't as rigid in terms of the restrictions, or the hotels have some kind of activation that's more appealing.” Core hotels, meanwhile, are more dependent on business travel and group guests, she said, which likely will require a longer recovery period.
As hotels launched new brands in recent years, there was concern that an already competitive market was becoming more competitive, especially as developers signed up for new products like Hilton’s Tru and IHG’s Avid, said Biran Patel, chairman of AAHOA and partner at BHP Investments Co. Now, he said, the sheer number of brands under the different umbrellas is causing consumer confusion—“and then there's no major differentiators at times,” he said. “As we're navigating the road to recovery through this pandemic, we're going to see more of an impact of all these brands that have come up and development that's happened.” As a solution, he suggested downgrading properties, taking underperforming midscale assets into the upper-economy segment instead.