Lodging 2017: Decreased Volume, Shifting Capital Sources

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 10th 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.

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