SAN FRANCISCO — There are a lot of things to worry about across commercial real estate investment, including the fallout from some high-profile regional banks.
But members of the Hospitality Asset Managers Association still believe labor is the top issue they face, according to a recently released survey.
In the association's "Spring 2023 Industry Outlook Survey," 64.6% of respondents ranked wage increases as one of the factors they are more concerned about, followed by 57.3% who are worried about labor availability and 52.4% concerned about demand.
No other concerns were picked by a majority of the membership, and just two others exceeded 30% — management company performance and increased insurance costs, both at 31.7%. Just 26.8% of respondents ranked regional bank failures among their concerns.
Speaking with Hotel News Now during HAMA's spring meeting, board members at the association said their companies have been reluctant to cut staff even as layoffs become more prevalent in other industries because of how difficult hiring has been since the onset of the COVID-19 pandemic.
Matt Arrants, principal and founder of The Arrants Company, described the industry as "less responsive" to swings in demand.
"It's saying 'OK, I'll take the hit because it's cheaper than trying to replace employees,'" he said.
Arrants said that's the stated strategy even in markets where hotel demand is already in a downturn — including some in New England.
"We're not going to let employees go, whereas in the past, even if we didn't let employees go, we'd reduce staffing through normal attrition," Arrants said. "Now, we're working harder to hold on to those employees just because of the replacement cost."
Worries about staffing levels might seem more like a concern hoteliers would have in boom times rather than on the verge of a broader economic recession, but that doesn't mean asset managers are unconcerned about where the economy is headed.
In the survey, 65.9% said they believe the economy is already in a recession or is slated to fall into one at some point this year.
Derrick Yee, vice president of asset management for Placemakr, said the state of capital markets and the costs to borrow money actually could represent an opportunity for the hotel industry.
"Our model is inherently better than other real estate classes to absorb some fluctuations in interest rates," he said. "As things have been ramping up, our properties have been ramping up financially, so they can afford it."
Yee said it isn't the same in asset classes such as multifamily, where there is more likely to be significant distress because of the lending environment.
HAMA members don't expect a lot of hotel distress this year, at least within their own portfolios.
Just 7.3% of survey respondents said they expected to hand back keys or enter into forced sales, which HAMA board members is a lower percentage than typical in the biannual survey. Similarly, just 6.1% said they've handed back keys or been forced into a sale since the fall survey.
On the flip side, 74.4% said they're actively pursuing deals, indicating there is still money looking for a home in the hotel industry despite the high cost of financing.
Adam Tegge, vice president of acquisitions at Ashford, Inc., said a lot of investment groups are hoping for pockets of distress within hotels to get deals done. He added there's still a high amount of debt maturities, and lenders are still weary of some markets and types of hotels that have been slower to recover.
"There's some belief that there is some distress, whether it's later this year [in the fourth quarter] or going into next year," he said. "There will be opportunities from that. From the buy-sell side, there's still a disconnect in expectations, whether it's 10% or 20% or whatever that number is, there will be a convergence here, and we've seen a lot more of the UCC foreclosures and things like that, but it's not a trend, yet."
Other key survey results include members expecting growth in both revenues and expenses.
On the survey, 37.8% said they expect between 51% and 75% of their portfolios to exceed budgeted revenue per available room for 2023, and 23.2% expect 75% to the entirety of their portfolios to surpass expectations. In all, 67.1% expect 2023 RevPAR to be ahead of 2019 levels.
But because of increasing expenses, respondents were a bit more pessimistic on surpassing gross-operating-profit projections. In all, 51.2% expect at least half of their hotels to exceed budgeted GOP for 2023.