The mood at this year’s Americas Lodging Investment Summit is decidedly more positive than any time since 2007. RevPar has seen double digit grown in most Gateway Cities and Cap Rates there are Seller favorable. Capital is moving into secondary and tertiary market opportunities, with brokers from Cushman & Wakefield, HFF and Eastdil saying there are great buyer opportunities in Kansas City, Pittsburg and Middle America, transaction markets largely ignored since Lehman Brothers collapsed. Notwithstanding the bump in capital gains taxes, brokers are expecting another robust year in 2013, and with Gateway Cities picked over, look for REITs, private equity and institutions, including pension funds which are back in play, to show more interest in smaller transaction and outlying markets than in the past.
E-mobility is a focus of brands, which admit our industry is behind the airlines, theatres and just about everybody else when it comes to hand-held services, with obvious applicability to early room availability, check in and check out. There is continued pressure on the brands to prove their worth and lead, not follow, with not only e-mobility but also social media, OTAs, guest satisfaction surveying the next big thing.
Independent, lifestyle and boutique hotel companies will continue to creatively convert non-hotel properties with support from local jurisdictions eager for Transient Occupancy Tax (TOT) revenue, California being handicapped however with the demise of the redevelopment agency. Historic, New Market and other tax credit programs will continue to supplement the capital stack.
Balance sheet and CMBS lending will increase again this year for acquisition, but not so much for development, except for locations which can support a special story and reality based pro-formas. Although the new supply pipeline is creeping up from near zero, 2013 will not bring enough rooms on line to impact improving metrics in rate and occupancy. EB-5 financing from internationals investing in green cards will fund some new development, but concerns about transparency, certainty and complexity weigh against this capital source, which is nonetheless well-priced and ready to take on more risk than traditional sources. Some EB-5 deals with questionable sponsors and track-records will blow up, tarnishing the program, but others will achieve the goals of development funding, job creation and permanent residency.
All of this with the caveat that Congressional inability to craft a grand bargain on the budget, European volatility, a burst of the China bubble and other global unknowns threaten 2013’s likely upward mobility. And as Former Chair of the FDIC, Sheila Bair, warns, until bank reserves are based on actual assets instead of modeled assets, which allow banks to game the system, and opaque derivatives are banned from FDIC insured lenders, the next banking crisis is never far away.
