No Deep Discounts for Hotels, But There Is Still Opportunity to Unlock Value

Once the pandemic hit, many investors waited, patiently, for opportunities to buy assets at a discount. There was a widespread expectation that a wave of distressed assets would come to market, as happened following the Financial Crisis. The wave never crashed ashore. In the hotel sector, the absence of reduced pricing has halted investment activity, despite being one of the asset classes hardest hit by the pandemic.

Driftwood Capital added six hotel assets to its portfolio last year, finding value opportunities where it can. “Challenging times present opportunities to unlock value, so that what’s driving our investment activities and appetite for hospitality assets in general,” Carlos Rodriguez Sr., CEO of Driftwood Capital in Miami, tells GlobeSt.com. “The deep discounts that most industry experts were predicting [in 2020] never fully manifested—but there were some discounts to be had and we were able to capitalize on that.”

Rodriguez also notes that hotel assets are popular this year as inflationary pressures have started to swell. “Hotels are a great hedge against inflation, he says. “We adjust prices daily and it’s real estate that is able to hold its value through time.”

Driftwood’s acquisition activity last year included The Sheraton Old San Juan in Puerto Rico, one of the most visible properties in the historic old city, according to Rodriguez, and The Wylie Hotel, a brand new, 111-key boutique hotel in Atlanta’s historic Old Fourth Ward neighborhood.

Opportunity zones are also providing an outlet for hotel capital to transact in the market. “The opportunity zone program has also become more popular with real estate investors over the past year as it offers investors an unprecedented opportunity to stash their stock market or property markets gains and put them to work elsewhere, reducing or eliminating taxes altogether depending on hold period,” says Rodriguez. The firm currently has three developments under qualified opportunity zone funds, including one ground-up project in Miami. “We’re very experienced in structuring and administering these QOFs.”

Despite the dislocation from the pandemic, Rodriguez remains bullish on the sector because hotels still present a long-term value proposition. “Regardless of ups and downs in the cycle, long-term success in hospitality boils down to buying hotel assets in the right location with the right demand generators at the right price,” he says. “That’s something we’ve gotten very good at over the past 30 years.”