Rauch asked the panelists where developers will find debt and equity to build, and Guy Maisnik, partner and vice chair of JMBM's Global Hospitality Group, said while CMBS has been out, borrowers are looking at banks, private capital, foreign investment (which is dropping), EB-5 funds, life companies (although there aren't many of these in hotel construction since they are typically conservative) and specialty funds. “It's harder today [to get construction financing] because land values are so high—they've tripled since 2010—so only the significant players can get into the market.” Reay agreed that it's getting much tougher to complete hotel financing and acquisition in the current market.

Maisnik said CMBS is starting to come back out again; investment bankers say they are starting to see some warming from this sector. But Reay said if the hotel is not one of the major flags, it's still tough to get financing this way.

Rauch asked who the buyers and sellers are now, and Reay said in 2016, hotel sales dropped by 30% from a high volume in 2015. The Chinese insurer Anbang's acquisition accounted for 50% of the sales volume in 2016, but year-to-date purchases from China have been zero in 2017. “We will see a big drop in sales volume this year” because of buyers dropping out of the market, said Reay.

Rauch asked if the Chinese pullback and EB-5 are related, and Maisnik said, “Not really.” The Chinese government has cracked down on outflows from China after having looked the other way for a long time, and at this point, there's little confidence in closure on deals with Chinese buyers. On the other hand, with an April date looming to decide the fate of the EB-5 program, Maisnik says experts are confident it will be extended. “Last year, we were able to source [a significant amount] of EB-5 dollars. People still think they can get their deals done. There are a number in the hopper right now.”

Maisnik said now is not the time for developers to take a “wait-and-see” attitude toward EB-5 projects; there are still long lines for these projects at regional centers, so it's worth jumping in.

Rauch asked, with regard to Congress's stance on regulations and reforms, is it good or bad for the hotel industry with Trump as president? Reay said overall it's a good thing because he's a real estate guy, “but 1031 exchanges are under attack. If Congress removes [1031 tax protections] and China pulls out of the investment market, this could be a huge negative.”

Maisnik said the 1031-exchange issue is on the table, “But I don't think it will go away.” He added that Trump is more concerned with other things right now before tax reform, so this won't change for a while.

Rauch then turned to the issues of prevailing wages, labor and union costs. Maisnik said the prevailing-wage issue—whereby any public improvement to be done requires the workers to be paid the prevailing wage, really a hidden tax that raises the cost of a project 20%—is odd, but it's still being hashed out in the courts. Reay said trying to sell a union hotel is very difficult, and Maisnik added that many who have apartments of 40 or 50 units and up run them like they're hotels.

A question from the audience about unions was raised, and Maisnik said, from the perspective of an owner, a construction union is better than an operating union because as a one-time cost, it's less expensive. Attendee Gary London noted that unions can shut down deals, and Maisnik said sometimes ou have to capitulate to unions to get projects and deals done.

An attendee asked how the US hotel-investment market is remaining competitive with Europe and other regions, and Rauch said it is still considered a safe haven to invest here, but investors do have to deal with tax issues. Reay said EB-5 is one solution to this.

A question was raised about homeless issues affecting business in trendier markets, and Reay said this is a big problem. Rauch said in San Diego a lot of people are putting pressure on Mayor Faulconer to increase the transient occupancy tax in order to alleviate the homeless situation.

DEL MAR, CA—With Chinese investors facing difficulty in getting their money out of the country and other headwinds the hotel industry is facing, sales volume is projected to decrease this year, but there is still opportunity, speakers at RAR Hospitality's 10^th Annual Lodging Industry Forecast here Friday told the 153 attendees, a record-breaking number. The breakfast event was split into two panels: the first, an economic forecast and predictions on how the economy will affect the hotel industry this year; and the second, a look at evolving travel expectations and how the industry can meet them.

Bob Rauch, CEO and founder of RAR, moderated the first panel. He started off by saying the economy is strong, and we may have even just avoided a recession. “Brexit is not a big problem globally,” like many thought it would be, he said. “If the economy is good, lodging is good.”

Rauch said there's not much new hotel supply right now, but the market needs to drive RevPAR growth in order to keep costs in check.

Alan Reay, president and founder of Atlas Hospitality Group, said while there are more than 100,000 new hotel rooms in planning in California, they won't all get built. “We're seeing a lot of new product coming into the market, and they're in danger of overbuilding in Downtown L.A.” This is not a concern for San Diego, which has kept hotel development in check, with only six projects opening this year throughout the county, but Downtown L.A. is in need of enough hotel rooms to service its convention center. While many traditional hotel lenders have pulled back on construction lending, Reay said private equity is filling the gap.

Rauch asked the panelists where developers will find debt and equity to build, and Guy Maisnik, partner and vice chair of JMBM's Global Hospitality Group, said while CMBS has been out, borrowers are looking at banks, private capital, foreign investment (which is dropping), EB-5 funds, life companies (although there aren't many of these in hotel construction since they are typically conservative) and specialty funds. “It's harder today [to get construction financing] because land values are so high—they've tripled since 2010—so only the significant players can get into the market.” Reay agreed that it's getting much tougher to complete hotel financing and acquisition in the current market.

Maisnik said CMBS is starting to come back out again; investment bankers say they are starting to see some warming from this sector. But Reay said if the hotel is not one of the major flags, it's still tough to get financing this way.

Rauch asked who the buyers and sellers are now, and Reay said in 2016, hotel sales dropped by 30% from a high volume in 2015. The Chinese insurer Anbang's acquisition accounted for 50% of the sales volume in 2016, but year-to-date purchases from China have been zero in 2017. “We will see a big drop in sales volume this year” because of buyers dropping out of the market, said Reay.

Rauch asked if the Chinese pullback and EB-5 are related, and Maisnik said, “Not really.” The Chinese government has cracked down on outflows from China after having looked the other way for a long time, and at this point, there's little confidence in closure on deals with Chinese buyers. On the other hand, with an April date looming to decide the fate of the EB-5 program, Maisnik says experts are confident it will be extended. “Last year, we were able to source [a significant amount] of EB-5 dollars. People still think they can get their deals done. There are a number in the hopper right now.”

Maisnik said now is not the time for developers to take a “wait-and-see” attitude toward EB-5 projects; there are still long lines for these projects at regional centers, so it's worth jumping in.

Rauch asked, with regard to Congress's stance on regulations and reforms, is it good or bad for the hotel industry with Trump as president? Reay said overall it's a good thing because he's a real estate guy, “but 1031 exchanges are under attack. If Congress removes [1031 tax protections] and China pulls out of the investment market, this could be a huge negative.”

Maisnik said the 1031-exchange issue is on the table, “But I don't think it will go away.” He added that Trump is more concerned with other things right now before tax reform, so this won't change for a while.

Rauch then turned to the issues of prevailing wages, labor and union costs. Maisnik said the prevailing-wage issue—whereby any public improvement to be done requires the workers to be paid the prevailing wage, really a hidden tax that raises the cost of a project 20%—is odd, but it's still being hashed out in the courts. Reay said trying to sell a union hotel is very difficult, and Maisnik added that many who have apartments of 40 or 50 units and up run them like they're hotels.

A question from the audience about unions was raised, and Maisnik said, from the perspective of an owner, a construction union is better than an operating union because as a one-time cost, it's less expensive. Attendee Gary London noted that unions can shut down deals, and Maisnik said sometimes ou have to capitulate to unions to get projects and deals done.

An attendee asked how the US hotel-investment market is remaining competitive with Europe and other regions, and Rauch said it is still considered a safe haven to invest here, but investors do have to deal with tax issues. Reay said EB-5 is one solution to this.

A question was raised about homeless issues affecting business in trendier markets, and Reay said this is a big problem. Rauch said in San Diego a lot of people are putting pressure on Mayor Faulconer to increase the transient occupancy tax in order to alleviate the homeless situation.