NEW YORK — Braemar Hotels & Resorts CEO Richard Stockton is confident that the back half of 2022 will fill up with events since group business is coming back "like wildfire" across the hotel industry.
Speaking with Hotel News Now during the 2022 NYU International Hospitality Industry Investment Conference, Stockton said demand for group bookings across his portfolio has been ramping up. Up until a few months ago, a majority of bookings were coming from social groups, but now corporate business is being added to the mix.
In comparison to 2019, "we're at, for the year, single-digits down on group pace. The back half of the year is very, very strong," he said.
Stockton said Braemar began the first quarter of 2022 with 30% occupancy at its urban properties. By the end of the quarter, those properties were running at more than 60% occupancy.
The return "is happening, it's there," he added, in part due to fewer COVID-19 testing requirements and mask mandates.
"People don't want to believe it; that it's too good to be true, looking for dark clouds on the horizon. We're not seeing them," he said.
Acquisition Strategy
Within the past year, Braemar completed two acquisitions, including the Dorado Beach, a Ritz-Carlton Reserve, for $193 million, and the Mr. C Beverly Hills for $65.4 million.
"Those were deals where we had, I'd say, unique opportunities. In the case of the Mr. C deal, we had a motivated seller who was facing a refinancing of debt maturity that they needed to sell the property; otherwise they'd have to come out of pocket to refinance," he said. "We were able to provide them with a solution. We used a combination of [operating partnership] units but also a pay down of their debt. In addition to an assumption of that loan, we also provided them with some cash to pay off a mezzanine loan."
Stockton said the seller liked idea of being able to roll into Braemar's operating partnership and continue to retain upside. After the deal, his company changed the hotel's management company, which allowed a better pricing strategy, he said.
For the Dorado Beach property, Stockton said the dynamics of the deal weren't necessarily based on his team paying the highest price. The seller was looking for a long-term partner, he said.
"We had a little bit of a courtship, getting to know one another. So when we finally put our price down, it wasn't necessarily the highest price that they could achieve, but it was the right partner that they wanted to work with," he said.
Between the past two acquisitions, Stockton feels those deals were favorable for Braemar's shareholders.
Competition in the Deals Market
Stockton said he isn't seeing much distressed pricing in the market.
"We're seeing what I call 'opportunistic sellers,'" he said. "2021 was such a banner year. It was the best year on record for most luxury resorts. In some cases, the [net operating income] generated in 2021 was two or three times the high watermark historically."
This has led to several owners selling at the same cap rates that they would have historically, based on much improved performance.
"They're literally seeing the value of their assets double or triple," he said. "Now, the problem is, not all buyers are willing to underwrite that [this] level of performance is sustainable. Buyers like ourselves want to be a little bit more conservative."
As a result, dozens of properties that have come to the market aren't trading, Stockton said. Braemar has looked at more than 30 deals so far in 2022. Only two of those deals are now under contract with other buyers, he said.
"The rest are going to get pulled, going to get postponed, because you have a disconnect right now between the sellers and the buyers," he said, noting this trend began significantly in March.
Stockton said his real estate investment trust plans to be a net acquirer this year, with hopes of purchasing up to three hotels per year. One acquisition has already closed this year — the Dorado Beach hotel.
"I would love to complete another one before the end of the year. But, again, it comes down to being financially disciplined and ensure that I'm not overpaying. I can't guarantee you that we'll acquire something else this year because we've looked at so many things and the numbers just haven't worked for us relative to the pricing that sellers are seeking," he said.
The REIT's niche investment strategy of only investing in luxury properties requires it to be flexible in terms of the markets it considers. At the same time, he said, there are a finite number of markets that have the revenue per available room the REIT is looking for.
In the first quarter of this year, the portfolio ran at nearly a $400 RevPAR, he said.
"Not to say we only do deals of that [amount] but certainly over $200," he added. "That can come from only a handful of markets around the country. It's mountain resorts, Napa Valley [and] urban centers [as well] as beach [markets] like Florida, the Caribbean."