Jeffery I. Cohen, SVP Franchise Capital Advisors
From GRS Group Guest Blogger – Jeffery I. Cohen, SVP Franchise Capital Advisors
Deal-making, the unveiling of new hotel brands, and most importantly optimism ran high among the 1,800 attendees during the sold-out 23rd annual Lodging Conference held at the Arizona Biltmore Hotel from Oct.30 to Nov. 2, 2017. Hoteliers, hotel executives, and industry professionals expressed a positive attitude towards the prolonged lodging cycle, while remaining wary of the threats that the industry continues to face, ranging from increased costs on a property and development level, to labor shortages and the recruiting/retention for quality employees.
A panel of hotel company executives on Oct. 31 relayed the expectation that hotel companies will continue to consolidate to grow their economies of scale and add more brands to their portfolios in the coming year. Much discussion and concern amongst the attendees is that too many new brands coming out of the main “motherships flags” will erode sales from operators and confuse guests seeking to stay with the parent company brand under the umbrella they associate with in terms of quality and guest brand loyalty/patronage.
Hoteliers at the conference also took a closer look at their development strategies and financing options as the cycle nears its end. Low rates mean low barriers to entry for pipeline supply, however, as land costs escalate and the average cost of a Home2 Suites (REITs and Franchisees Bullish On The Brand) is now averaging $22,000,000 per new build with land and building, the need for equity partners to help support cash outlay for the operator/developer has never been greater. Because of this, private equity remains a majority owner in the lodging industry, and as long as cheap debt is still available, the industry will continue to see short-term financing.
Other Notables:
- Most operators seeking construction financing debt/equity options, JV partners
- Sale Leasebacks are starting to become an option that some owner/operators would consider
- Local governments are taking longer to approve design and permitting for new projects, making it more difficult to get projects in the ground and going up
- Daily Rates compressing in some major markets now getting overbuilt with supply and many tertiary markets is where developers are seeing upside
- Year over year new hotel openings continue to average 2.5% growth with 130,633 new rooms forecasted in 2018 and 134,990 new rooms forecasted in 2019
- M&A and Valuations are still a sellers’ market, though compressing over the past 12 months
- More than ever, foreign tourists are coming to the US in record numbers for road trips and national park visits, thus increasing the demand for more supply along interstates
- 2-3 years of continued growth and new room absorption seemed to be the consensus of attendees, uncertainty after that.
Franchise Capital Advisors was present at the conference to meet with many of our developer/operator clients to discuss ground up pipeline development financing options through debt, equity, and JV through our partners on Wall St. FCA also has a large global buyer-client network seeking to purchase hotel assets as a real estate investment with yield through a Sale Leaseback model. Mostly unheard of in the lodging industry, a Sale Leaseback can be accomplished with a seasoned and creditworthy operator/tenant. FCA is proud to say that we are leading the industry with the Sale Leaseback model in the hospitality space.
About the Author
Jeffery I. Cohen is a 30-year veteran of the restaurant, club, resort, and hospitality industry working for many of the top luxury brands such as The Ritz Carlton, Four Seasons Hotels, America Golf Corporation. Jeff and his family reside in Scottsdale, AZ where he enjoys working hand-in-hand with GRS Group to exceed the expectations of his Investment Banking clients with their financing needs in the Chain, Franchise, C-Store, Retail, Industrial CRE space. Please click here to learn more about www.franchisecapitaladvisors.com
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance. We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies and delivering customized solutions to assist our clients in achieving their investment goals.