H&LA’s Adam Zarczynski attended the Hunter Hotel Investment Conference in Atlanta in March. Here are some key highlights from the conference:
- Optimism could be found, although many leaders cautioned the industry is still facing significant challenges. While hotels continue to achieve strong KPI’s in many markets, inflation and high interest rates have slowed down the construction pipeline in recent months. Additionally, hotel sales activity has also been impacted as sellers continue to search for strong returns and buyers are looking to acquire assets at lower prices due to the issues with financing. On the first day of the conference, there was talk of what would transpire the following day as the Fed was set to make an announcement on interest rates. Ultimately and as expected, the Fed announced a 0.25% interest rate hike, and that will continue to impact financing for many projects.
- One challenge that has been within the hospitality industry is staffing levels. In an AHLA-sponsored survey conducted by Morning Consult, 79% of hotels reported being understaffed with 22% being severely understaffed in January 2023. While these numbers continue to be high, there was a noticeable improvement from the survey conducted in April 2022 showing that 96% of hotels were understaffed and 63% were severely understaffed. In various sessions at the conference, some companies reported seeing an increase in applicants; however, staffing issues were still noted at many properties.
- While financing has been a key contributor to slowing down construction, costs of construction have also had an impact in recent years. Rising construction costs continue to be an issue, although some developers and contractors reported seeing improvement in the supply chain as of late. Developers have begun looking at different options to help make projects work with higher interest rates and construction costs. Some projects are adding to their room count to help bring down the cost per key, and there has been a rise in dual-brand construction to help with operating efficiencies as well as saving on the construction costs. Additionally, some have received flexibility regarding brand standards of the required guestroom and public space sizing. It was noted in the Structuring Deals for Success session that construction costs will not decrease going forward, rather it is anticipated the increases will be less steep than they have been over the past two years.
- On the development side, issues related to financing are not only limited to interest rates but also finding lenders willing to finance projects right now. With the recent failures of Signature Bank and Silicon Valley Bank, there are concerns about how this could impact lending going forward. It was noted that financing may be more challenging for new developers in the short term as companies may prefer to work with those they have done business with in the past over taking a chance on new clients. Establishing a strong relationship with lenders was emphasized to ensure that when times are good or bad, investors have a lender they can go to that will help their project move forward.
- In spite of the challenges that are still being faced by the industry, the performance reported by multiple hotel companies for year-end 2022 exceeded year-end 2019, which most did not think would be possible this early in the recovery period following the impacts of COVID-19. Another positive development has been the reduction in the number of hotels reporting severe understaffing levels. Going forward, this will help improve guest satisfaction scores and take some of the burden off management who have been forced to make up the gap in many cases.
About the Author
Adam Zarczynski is a Senior Associate at Hotel & Leisure Advisors (H&LA), a national hospitality consulting firm. H&LA produces reports that assist clients in the hospitality real estate industry. H&LA specializes in appraisals, feasibility studies, impact analyses, economic impact studies, and litigation support for hotels, resorts, waterparks, casinos, conference and convention centers, golf courses, ski resorts and other leisure real estate. Our experienced consultants travel nationwide analyzing hospitality trends, studying leisure industries, and understanding local communities. We focus on our clients’ competitive markets and provide thorough and thoughtful analysis of hospitality properties. Our consultants have analyzed and prepared studies on more than 3,000 properties in 49 states, Canada, and the Caribbean. You can reach Adam in our Cleveland office via email at email@example.com or by phone at 216-228-7317.