Despite ongoing macroeconomic tailwinds and RevPAR in the industry decelerating, the next 6-12 months in hospitality are going to be “very active” for dealmakers, according to Joe Delli Santi, chief investment officer of vertically integrated hotel owner-operator MCR. “I think you have a debt market that is now fully cooperating,” he says. Santi notes that MCR has executed deals in recent times at debt costs “comparable to pre-Covid spread levels." He adds: “You have so many debt funds that are willing to lend into any transaction, and you have a bid-ask spread that I would say is narrowing between buyers and sellers.”
Adds Mark Owens, vice chair capital markets at Colliers: “I think what we all forget, particularly post-Covid, in terms of the long-term historical average of interest rates, is that we are a bit wider today, but not that dramatically wider.” He adds that the relatively recent “zero rate” environment was “an exception… not the norm.” He notes that for transactions today, there are still opportunities to “engineer the capital stack to make it work or educate the market on what’s required to make it work.”
Sean Gormley, managing director at Morgan Stanley, also perceives “an environment of stability.” He notes: “Rates have certainly gapped out on an overall basis relative to 36 months ago, but on a historical basis it's attractive. I think there's an expectation that it's going to be at this level - maybe a little bit tighter - for a period of time.” All this makes waiting to strike less compelling, he suggests. Meanwhile, greater clarity from lenders and “in-place debt” is also improving the outlook.
Asset Sales
James Francque, global head of transactions, Hyatt Hotels, shares that the last 12 months have been extremely active for Hyatt on the deals front, as part of the hotel group’s journey towards becoming “asset light." “We’ve sold about $775 million worth of hotels in the last year,” he says. “One in Aruba, one in Zurich, and two in the U.S. I think with those sales we now view ourselves officially as asset light – that’s a journey we’ve been on.”
To read the rest of this article, visit our sister site, Hospitality Investor.