2024 is going to be the "year of the great reconciliation" between capital markets and hotel asset prices, according to Kevin Davis, CEO of the Americas for JLL's Hotels and Hospitality Group.
"From a capital markets debt perspective, I think we are in a higher-rate environment. Just fundamentally, I think this is a secular shift. And as a result, asset prices have to adjust to accommodate a higher cost to capital. That adjustment will take time. It's not going to happen overnight, so I think you will start to see a reconciliation of the challenges in the capital markets and higher cost to debt relative to asset prices," Davis said during a podcast interview with Hotel News Now. "In industry speak, what that means is that there will be a narrowing of the bid-ask spread between what sellers want to receive and what buyers want to pay."
He feels this will in turn propel strong transaction activity in 2024.
Additionally, Davis said there will be a continued recovery of group and business transient demand, with a "sprinkling of distress around the country."
While there will be distress and highly motivated sellers who need relief from maturing debt and can't refinance their hotels, Davis there won't be the wave of distressed assets that many in the hotel industry have anticipated in the past few years.
"For a lot of that transaction activity, it's going to be masked as a 'regular' sale because an owner may say, 'My lender's not willing to refinance and/or I have to put cash in, I do have equity value here. So rather than ride this out, I'm just going to sell the asset and take chips off the table and move forward,'" he added.
Short-Term Rentals and New York City
In early September, New York City enforced new legislation that tightens rules on how short-term rentals, such as Airbnbs, are allowed to operate.
"The new rules are intended to effectively end a free-for-all in which city landlords and residents have been renting out their apartments by the week or the night to tourists or others in town for short stays. Under the new system, rentals shorter than 30 days are only allowed if hosts register with the city. Hosts must commit to being physically present in the home for the duration of the rental, sharing living quarters with their guest. More than two guests at a time are not allowed, either, meaning families are effectively barred," AP News reports.
Davis said this creates a tremendous tailwind for hospitality in New York City.
JLL projects that the supply of Airbnb units will likely decline by roughly 70%.
"What this means to hotels is we think there will be an incremental 2.2 million room nights that are sold. We think it will generate a little north of 4 points of incremental occupancy in New York City hotels and almost $400 million in incremental revenue that would have been spent in Airbnbs [and now] will be spent in New York City hotels," he said. "We think that this is one of the key tenants in the recovery of the New York City hotel market."
When asked if New York City's recovery story will still be what it's expected to be had the city not tightened its short-term-rental regulations, Davis said not necessarily but it certainly is "the cherry on top."
For more insight from JLL's Kevin Davis, listen to the podcast above.