$15B hotel CMBS is coming due in 2023, and $5B will be stressed
The Fitch stress test suggests that 1/3 of all hotel CMBS coming due in 2023 will default or go to work out based on thresholds of 75% LTV & 1.25 DSCR.
Transaction volume will accelerate in 2H 2023, at a lower $ per key
Some owners will be forced to sell (see point #1 above) in a high-interest rate environment, creating a better base acquisition price for today’s buyers.
Hotel cap rates could rise 100 bps above 2022
Climbing interest rates and distress are closing the gap between buyer and seller expectations. Cap rates will recover over the course of 4-5 years. Favorable cap rate compression in the years to come.
Lodging fundamentals are strong
Never in reported history has RevPAR increased during the recession. But this year is well on track to break that record as rates continue to rise and demand outpaces supply.
2023 RevPAR growth is front-loaded
This year’s growth is front-loaded with year-over-year gains vs. Jan/Feb 2022, when the Omicron variant still impacted travel. The remainder of 2023 will realize decelerating RevPAR growth.
Inflationary expense pressure persists
Operators are still fighting inflationary pressures on wages and cost of goods, though wage growth is stabilizing.
Union activity is accelerating
There were over 2,500 representation petitions in 2022 – up 53% vs. 2021. In addition, 18,000 ULP charges were filed in 2022 – up 19% vs. 2021. Total case intake was +23% - the most significant increase since 1976. A recent Gallup survey shows that public approval of unions is the highest since 1965. As a result, operators must be more focused than ever on workplace culture while wary of “salting.”
Lodging is an increasingly attractive investment
Lodging investment is becoming increasingly attractive as unlevered returns on hospitality investments continue to outperform levered returns of other asset classes.
