The Market's All Right: Why Hotels Are Still Worth Investing In
Hotels are in an odd spot. With supply floods in gateway cities, behemoth brands absorbing competitors and Airbnb muscling its way into every market, some investors may be questioning whether the industry’s worth investing in.
Liberty Hotel Advisors founder Bruce Blum and American Realty Capital Hospitality Trust CEO Jon Mehlman agree that, although the hotel market has slowed, there’s still plenty of room for growth and solid returns. They will be speaking at Bisnow’s fifth annual Lodging Investment Series at the JW Marriott in Washington, DC, on Sept. 21.
Bruce (pictured) says the hotel transaction market is in a soft spot: REITs are out of the market, private equity funds are mostly selling, and revenue per available room (RevPAR) is slowing in major markets. But that doesn’t mean activity and growth are going to stop.
“Transaction pace may continue to slow, and we’ll need to look a bit harder and further to find deals,” he tells Bisnow. “But it’s still an interesting time to be transacting with many buyers on the sidelines.”
As former co-founder and president of GB Lodging, Bruce led the growth of its lifestyle portfolio, which includes The Beekman, The Old #77 Hotel & Chandlery and The Carlton, and secured a significant construction loan for a Downtown Brooklyn lifestyle hotel in a “tough” loan market.
“By becoming the bridge between select, emerging lifestyle operators such as Ace, Thompson, Denihan and Provenance and their audiences," Bruce says, "we were able to get some neat deals done.”
Going forward, he says, Liberty Hotel Advisors will similarly partner with and advise institutional, private equity and high-net-worth investors.
Jon approaches the slowed market in a lower risk fashion, mainly working with the industry brand giants—such as Marriott, Hyatt and Hilton—that are “guaranteed to put heads in beds through their distribution system" and have a portfolio of “meat-and-potatoes hotels” with significant growth potential, higher yields, strong amenities and proximity to demand-generators like state capitals, hospitals or college towns.
Financing can still be found working on the far end of the risk spectrum. A banker for 23 years, Jon says he treats every cent of his investors' money as if it were his own, and makes decisions on a risk-analysis basis that will potentially yield a strong rate return, such as this Hyatt Place in Las Vegas.
One of the more unique tactics to Bruce’s success has been mining big data, which has helped him pinpoint several emerging neighborhoods that have flourished under the effects of Uber and other lifestyle trends. Jon’s looking into similar markets, but his decision was mainly colored by the lack of worthwhile yield in larger markets.
The soft economy has created some sensitivity in the hotel industry and there are reasons to be cautious, Bruce says, but travel’s still the world’s top industry. With a growing, mobile middle class, growth's poised to continue.
"Investors should find any opportunities out there, but be cautious in what’s beginning to finally look like a turning interest rate environment," he tells Bisnow. Many may have changed where they’re looking and what they’re looking for.
