Tag Archive for: Hospitality Brand Management

The Impact of Recent Market Volatility on Hotel Values

Recent volatility in both the equity and debt markets, along with global macroeconomic concerns are continuing to impact hotel underwriting, out year forecasts and resulting asset values.

 

While current operating fundamentals continue to remain positive despite softer August trends, and short term forecasts are still strong (the most recent STR forecast calls for 6% RevPAR growth in 2016), underwriting (by both equity and debt sources) has become less aggressive and now includes slower growth in the out years, resulting in an impact on hotel asset values.

 

Transaction activity has also shifted in recent months– with REITs and some levered buyers on the acquisition sidelines. The disconnect between public market and private market values continues to impact the REITs’ ability to acquire; this coupled with the recent increase in their cost of capital, has caused most of the REITs to be out of acquisition market, resulting in a slight increase in cap rates.

 

Overseas capital appears to have filled some of the void, and buying interest from foreign capital (particularly Asian capital) has increased over the past several months given the recent global macroeconomic turmoil, with US real estate presenting an attractive long-term option compared to domestic concerns in Asia. However, the majority of this foreign capital has targeted trophy assets in gateway markets.

 

Additionally, the recent debt market volatility has increased all-in debt costs, with spreads rising 30-50 bps over the past several weeks. Bond spread gaps have widened as debt markets price in more risk. BBB REIT bond spreads have reached a three-year high at approximately 212 bps over the comparable 10-year Treasury yield, and bellwether Host Hotels and Resorts’ most recent bond offering is indicative of these heightened risk premiums in today’s market. In early May, Host priced a 4.0% coupon, $500 million bond offering (June 2025 maturity) at a 4.02% yield to maturity, a 178 bps spread to the 2.24% benchmark Treasury yield; in early October, Host priced a 4.5% coupon, $400 million bond offering (February 2026 maturity) at a 4.54% yield to maturity, a 248 bps spread to the 2.06% benchmark Treasury yield. The 70 bps increase in spread reflects greater investor uncertainty amidst slowing global growth and mixed economic indicators.

 

Rising all-in debt costs have caused some leverage-focused buyers of hotels to remain on the sidelines. This along with a slight increase in cap rates, and less aggressive out year underwriting, has contributed to hotel real estate values resetting approximately 5% lower in recent months.

About 360 Capital Advisors™

360 Capital Advisors™ is a strategic advisory and asset management firm focused on creating value-enhancing solutions for hospitality assets worldwide. 360 Capital Advisors designs and implements comprehensive, innovative solutions that deliver optimal value in hospitality real estate throughout the investment cycle.

For more information, visit www.360-capitaladvisors.com or contact info@360-capitaladvisors.com.

360 Capital Advisors: Maximizing Hospitality Asset Value

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Hotel Development and Project Management

Hotels investments can be complex: they are a combination of real estate, franchise and brand considerations, as well as an operating business. At 360 Capital Advisors, our team has had extensive experience with the hotel asset class from every vantage point: from a brand perspective, management company perspective, and an ownership perspective. With decades of experience in the hospitality industry, we bring a wealth of knowledge to the table, and can offer our clients a complete range of services to maximize the value of a hotel through the investment lifecycle.

A Personal Touch

As a boutique firm, we provide a high level of client engagement and oversight. Each of our senior team members have had the opportunity to wear different hats in the hospitality industry – having held senior roles in Brand, Ownership, Management Company, Advisory and Investment Management situations, and we have successfully navigated through multiple industry cycles over the years. Allow us to put that experience to work for you. Visit us online to learn more or simply give us a call at 540-277-3300. We look forward to hearing from you!