Industry Leaders Say Debt Uncertainty Top Threat to Hotel Investment

Article originally posted on CoStar on May 3, 2023

The Lodging Industry Investment Council’s annual forecast of lodging investment trends and challenges reveals that debt uncertainty is chief among concerns in the next 12 months.

Mike Cahill, LIIC co-chairman and CEO and founder of Hospitality Real Estate Counselors, produced this year’s survey. LIIC members, which include industry investors, lenders, corporate real estate executives, real estate investment trusts, public hotel companies, brokers and equity sources, altogether represent direct acquisition and disposition control of more than $60 billion in lodging real estate.

A total of 67% of LIIC members feel uncertainty in debt acquisition financing is the top threat to hotel investment. Additionally, 47% worry about refinancing their existing hotels, the survey said.

However, 42% of investors are optimistic that the availability of hotel debt will slightly improve over the coming year.

“LIIC predicts that debt funds and private money will be leading the activity charge. Also forecasted is an increase in mezzanine lending to top off the acquisition capital stack and to replace capital calls. Assumable debt deals are expected to increase over the next six months,” the survey states.

More than half of the survey respondents said now is an opportune time to identify, tie up and predevelop for construction. Hotels that are expected to dominate the development pipeline are economy extended stay, with select-service close behind.

Of those surveyed, 56% believe the total dollar volume of U.S. hotel transactions this year compared to 2022 will decline, while 35% feel it will increase. More than half, 53%, said the overall quality and desirability to purchase a hotel that’s on the market now is worse than 2022.

Survey respondents said the best markets to buy in now are Tampa/St. Petersburg, Phoenix, Denver, Boston and Miami.

In terms of cash flow, hotel owners continue to struggle with a tough labor market.