There's a Sizeable Gap Between Hotel Buyers and Sellers

The disconnect between solid demand and growth prospects and uncertain financing conditions is creating a sizable gap between the expectations of buyers and sellers in the hotel asset class, according to a news video by Marcus & Millichap.

“This means buyers need to be patient and be very selective in their deals,” Biran Patel, its Senior Vice President/National Director-Hospitality Division said.

“Look for motivated sellers to capitalize on good opportunities and take advantage of minimal institutional competition for listed properties.”

Value-add deals for cash purchases can also be an option for investors looking to capitalize on uncertainty or reposition their portfolio, he said.

Sellers have a few options.

“If they’re not getting the price wanted, they can wait for the cost of capital to decline, which will hopefully increase the buyer pool and drive pricing than what is available today, or they can sell now if they have a capital call coming up or reposition into an asset they like more moving forward,” Patel said.

“However, even with the reduction in pricing, sellers can still take advantage of the post-COVID boom relative to their buy-in price.”

Over the next two or three quarters there will still be a number of trends taking place, he said. Transaction volume will still likely stay below 21 and 2022 until the debt market stabilizes or the buyer-seller expectation gap narrows.

However, there will still be some sellers that cannot hold on any longer due to debt coming due and there will be deals occurring that make sense for the buyer and seller.

Commercial real estate is a resilient industry and agents and investors need to stay on top of the economic conditions and trends, but the outlook is positive over the long run for hotel investments, Patel said.

The cost and availability of debt is the top challenge right now and participants must choose whether a high floating rate is affordable, or should they wait for the debt market comes down?” he said.

“This is naturally leading to fewer buyers in the marketplace, which has also caused CAs to be down a good amount,” Patel said.

Wall Street expects interest rates to stay relatively stable for the near future and doesn’t expect significant downturn movement to interest rates until at least 2024, “meaning the market will adjust to a higher interest rate environment before we see rate cuts,” he said.

In the meantime, hoteliers are inquiring about distressed and foreclosed assets, and as loans are maturing, there’s anticipation of assets coming up, according to Patel.

“Sellers that are motivated may sell 15 to 20% pricing valuations of 2021 and 2022 in certain situations,” he said.