Hotel financing experts warn of acquisition debt shortage
Imagery courtesy of AHC. L-r: Abrdn’s James Dunne, Schroders Capital’s James Macnamara and KSL Capital Partners’ Tina Yu.
This week’s AHC event in Manchester, UK brought together a selection of hotel financing specialists to assess the state of investing while the prevailing economic headwinds are so volatile.
During a session entitled: ‘CBRE Capital Talks: Searching for the right stock: investing in hospitality in 2022 and beyond’, Tina Yu, principal at private equity firm KSL Capital Partners, expressed concern about hotel financing.
She said: “New debt availability for acquisitions has really dried up unless you’re a high quality sponsor or you’re taking low leverage on a high quality asset.
“You will probably see all-cash buyers becoming incredibly competitive because the availability of debt is just not there for some assets.”
Schroders Capital’s head of operational real estate, James Macnamara, analysed current perspectives on financial risk, commenting: “In public bonds, particularly in real estate, you’re seeing the repricing of risk. People are offering investors a fixed equity return for a certain amount of risk, taking less risk for the same return – the cost of equity is going up.”
While James Dunne, head of operational real estate at investment company Abrdn, said of the current investment environment: “We are in peak uncertainty, that isn’t the time to be making decisions. The one thing we are driving towards for our real estate investment is going back to the fundamentals of investing for long term sustainable cash flows. It isn’t about huge amounts of capital appreciation over the short term.”
Asked about the possible effects of a recessionary environment, Dunne added: “I think we have to accept that corporate travel has declined and will continue to be subdued. The mass market for midscale business hotels is going to suffer. Business travellers will be staying longer but taking fewer trips.”
KSL’s Yu detailed why she believes investors would continue to look at the hotel sector as opposed to others such as senior living or student housing, saying: “If you look at the longer term trends of travel it’s been growing. For us it’s about investing in good businesses and backing good teams. You can still find good businesses, you just have to invest in differentiated products and the right management team.”
She cited criteria to identify these ‘good companies’ as expert site selection within that business, for example, a hotel that can attract the local community and create a real buzz.
Long term vision
Schroders’ Macnamara followed that by outlining: “You have to have a vision of where the long term demand drivers are, and you have to review how you are going to provide that product and service to be differentiated. There’s a lot of bland, unbranded product that offers poor service or is too expensive. You need to provide a product that people are willing to pay for, do it properly and better than your peers. Find a piece of real estate that allows you to adapt to that.
“An area where there is huge room for growth and providing a differentiated product is the lifestyle sector and within that segment the luxury lifestyle is growing even faster.”
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