Trends Watch: Hotels

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Tracy Prigmore, Managing Partner, TLTsolutions.

What is your outlook for investing in hotels?

The year 2020 was the single worst year in the history of U.S. hotels, with convention, corporate travel, and leisure business stopping essentially overnight in mid-March.  While we have seen demand ebb and flow over the course of the last 12 months, it is clear that some hotels won’t make it.

New, opportunistic capital is entering the market based on the expectation that there will be a profusion of distressed asset deals, but so far, owners aren't budging on price.  As an investor, not only do I want to find a great deal because hotels include operating businesses, but I also have to make sure that the asset is going to be successful post-pandemic. 

Exterior environmental factors that hoteliers will not be able to control will lead the way. Some markets and locations will recover sooner and better than others. The key is to identify those markets and product types that have a greater probability of recovering the soonest and have long-term viability potential.

Where do you see the greatest opportunities and why?

New construction seems to be on a long pause, with debt financing available at rates that don't make sense for hotels.  We are focused on note sales, off-market deals and repositioning. These are the types of investments that we see as having the greatest upside opportunity. Some older, less unique product could benefit from being repurposed.

Where do you see the greatest challenges and why?

The greatest challenges in hotel investment today are the cost and availability of capital. Capital is always a challenge, especially for smaller and minority developers. In the current environment, so-called “vulture” capital believes they should be able to benefit from the market downturn and have established high-yield requirements whereas more reasonable debt capital options, such as community banks and other lenders, mostly have stopped underwriting loans for hotels temporarily.

What keeps you up at night?

According to global data analytics hospitality provider STR, U.S. hotel profits fell 84.6% in 2020 as a result of the pandemic.  With cases still increasing and vaccinations moving more slowly than hoped, 2021 is going to be challenging, although hopefully for a shorter duration. 

The thing that keeps me up at night is making sure that my investors receive a notable return and that none of their equity is lost.  I also think about how to obtain capital to grow our portfolio in the short-term and take advantage the opportunities that are already presenting themselves, while at the same time mulling over where to invest my assets in hospitality and in other asset classes -- what's the right mix?

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.