NEW YORK — There's a general expectation for hotel deals volume to pick up in this year's second half, and while trophy properties will make headlines, most transactions will be much smaller.
From a broker’s perspective, it depends on the type of hotel a prospective buyer is looking for, said Mike Cahill, founder and CEO of Hospitality Real Estate Counselors. Those looking for a hotel valued between $7 million and $15 million will see the market has probably doubled, as people are putting those properties on the market, oftentimes recycling them. Luxury hotels are still a tight market because of the bid-ask spread since there aren’t many owners putting them on the market.
At the end of the day, it’s going to be the mid-market deals that are available, Cahill said. People still want to buy extended-stay hotels, and his brokerage company has a couple of extended-stay hotel portfolios on the market knowing there’s aggressive buyer attitudes.
Extended-stay hotels are still the best in the industry in regards to performance metrics and profit margins, said Bill Stadler, senior managing director at Aimbridge Hospitality.
Investors are leaning into lesser risk, while customers are leaning toward experiences, which are more often found in full-service and lifestyle hotels than in extended-stay hotels, said Aperture Hotels CEO Charles Oswald. Year to date, the overall hotel industry has grown revenue per available room by less than 1%. At the economy hotel level, it was down 5% and also down in the midscale hotel segment.
“Then you go all the way up to luxury and it’s plus 5%, and that’s where the customer is, so the question is mitigating the risk,” he said.
Oswald said owners need to be careful about which extended-stay hotel deals they pursue.
“Make sure you actually have extended-stay business in that submarket,” he said. "Every market has got a unique thumbprint, and you can't look at that real broadly.”
Any time there’s a downturn, there’s a shift in demand to a different, lower cost vertical, Stadler said. Guests who normally go for full-service hotels move to select-service and so on. Extended-stay hotels have resilience, not the volatility. The business nature of extended-stay is typically stays of 26-plus days, so the segment will continue to be strong during a downturn.
“It showed it in the last few years, which is why everyone’s building extended stay today,” he said.
Oswald said extended-stay hoteliers likely wouldn’t stick with the true extended-stay model during a downturn. They’ll lean into welcoming short-term transient guests when occupancy becomes a problem.
“When things get tough and occupancy is not there, they’re going to shorten the length-of-stay requirements,” he said. “That’s part of what admittedly makes them more resilient.”
Stadler disagreed, adding that shortening the length-of-stay requirement would be a knee-jerk reaction. If a guest comes in requesting a month, but there are no rooms available because half the hotel is filled with transient guests, they’re going to regret that decision.
“I’m not saying there won’t be some shifts, but I think there’s enough long-term stays that you don’t really need to take that approach,” he said.
It may be that newer assets would shorten the stay requirement to get the cash flow, but mature assets that have been open for a few years will try to stick to their longer-term guests, he said.