HOTEL MANAGEMENT: Hotel companies adapt to changing investment environment
As the end of second quarter approaches, it’s increasingly apparent that the hotel lending landscape has become more complex in 2016. In fact, EY’s “Global Hospitality Insights: Top 10 Thoughts for 2016” is proving an apt assessment of the current lending environment, particularly as it pertains to commercial mortgage-backed securities. CMBSes started to trend downward in the final quarter of last year due to widening spreads and increased regulation, despite having been the largest source of debt for the U.S. hotel sector recently, comprising 39 percent of originations in 2015, according to EY.
Nevertheless, EY forecasted global hospitality investment to “remain favorable in 2016, buoyed by the continued expansion of equity, debt and emerging financing platforms.”
According to Herb Warmbrodt, president of Warmbrodt Hotel Investments, the number of buyers interested in investing in hospitality remains ample, from his perspective. “Now the issue is becoming the disconnect between the ask and the bid,” he said. “Metrics are showing slower growth, particularly in [revenue per available room]… and so there is the concern on the investment side that we’re pushing to a peak.”
He went on to say that sellers are not necessarily factoring in the changing metrics as they hope to sell on lower cap rates while lenders are pushing up rates and thus, adversely affecting the cap rates at which properties sell.