Anyone waiting for the hotel transaction market to pick up might have to hold on a little bit longer, according to two of the biggest investors in the space.
Speaking at the Skift Future of Lodging Forum, executives from Highgate and Starwood said that while the operational environment remained robust, the uptick in transactions had yet to happen.
“If you look at the actual hotel operational performance, it's been very strong. The recovery has certainly been real. And in many of the markets where we have the hotels, we've not only exceeded the 2019 levels in nominal terms, but also in in real terms,” Joe Pettigrew, chief commercial officer, hotel asset management at Starwood Capital Group said.
Acquisitions on the real estate side remain somewhat trickier, for a number of reasons:
- Central banks have raised interest rates over the past year, making the cost of debt much more expensive than it was.
- Valuations are still high and especially with hotels have yet to see much deterioration even in the face of macroeconomic uncertainty.
- The bid-ask spread is till too wide for buyers and sellers to agree on much.
“When you try to take the yield of your investment, versus the cost of debt, and then also the cost of construction, and the refurbishment and PIP, and all that stuff, a lot of these numbers are not really translating at least for somebody like us to have been making big deals yet,” Pettigrew said.
Pettigrew added, that although he was mainly on the asset management side, speaking with those on the dealmaking front, he said that “everybody's watching this space very carefully” and that the “tap is about to turn on” and when that happens there’s going to be a lot more activity in the market.
Highgate waiting and watching
Highgate has been one of the most active buyers in the hotels space in recent times and at the end of 2022 bought Viceroy Hotels and Resorts. For the time being, however, Ankur Randev, principal and chief commercial officer at Highgate, said the company was mostly watching from the sidelines.
“We are opportunistic, so we continue to have a look at every deal in its entirety […]so there'll always be a place to underwrite assets even now,” xx said
At a similar time to when it was doing the Viceroy deal, Highgate was also looking at Ace Hotels, although that business eventually found its way to Sortis Holdings.
On Viceroy, Randev said: “We think that we have a unique opportunity of scaling this platform,” he said.
Highgate is also looking to expand further in Europe, having been a part of the megadeal at the end of last year to buy a portfolio of hotels and other assets owned by Portuguese investment manager ECS Capital.
“Portugal specifically, we like because of some great fundamentals around supply and demand, On the supply side, there is a moat around acquiring assets, it's going to create barriers to entry in a scalable manner, he said.