LOS ANGELES — Hoteliers have learned to adapt as they navigate their way through a pandemic and its ongoing recovery.

During a general session at the Americas Lodging Investment Summit, hotel industry executives laid out their companies' strategies for deals, development and operations.

Last year was a tough year for real estate in general, said Jimmy Merkel, co-founder and CEO of investment firm Rockbridge. There were several converging events, including normalization after COVID-19, the increased margin pressure caused by inflation and lenders pulling back.

As interest rates rose without a lot of forward visibility, transaction volume dropped as it was more difficult to make deals work, he said.

“Everyone on our team has been doing this for 28 years now, and it’s one of the harder years in memory, but I always say it’s the beginning of a good time when you’re in bad times,” Merkel said.

The possibility of interest rate cuts has led to some optimism and clearer visibility, and that could lead to transaction volume picking up, he said.

Rockbridge’s approach has been to control what it can control and not fixate on what it can’t, such as the Federal Reserve or a seller, Merkel said. That’s helped the company focus on managing its hotels and having the right people in place to drive performance. There’s only so much margin that can be managed in a profit-and-loss review, which is why it’s so important to drive the top line and find revenue streams.

G6 Hospitality is hoping this year will be better than 2023, President and CEO Julie Arrowsmith said. Last year was tough on the economy segment, but as the possible economic soft landing plays out and conditions improve in the balance of the year, the company hopes to see the positive effects of the cost of debt decreasing.

All the indicators from banks, travel companies and media show that travel demand will continue to increase, she said. These factors combine to create a good opportunity for more positive revenue per available room trends.

G6’s team spent a lot of time on the road visiting its hotels and franchisees to learn about the challenges they’ve faced, Arrowsmith said. The labor issue has been improving a little as they figured out incentives and other positive ways to keep talented employees at their hotels. The company is focused on providing guidance, training and support to help with their retention.

Having a better understanding of guests and driving that top-line revenue will be a focus for the company this year, she said. G6 properties get a lot of walk-in business, and it’s important to understand what’s driving them to the hotel, allowing the company to boost demand.

There’s a significant amount of capital available, said Michael Lipson, chairman and CEO of Access Point Financial. Hotels have performed well relative to other real estate classes. The spread on hotels has not significantly changed, unlike office buildings and even multifamily, which has doubled in the last year.

Making deals will come down to whether the numbers work, he said. Owners have to plan for the cost of debt, knowing it's more now than it was just years ago.

“We’re going to have to normalize that at some point,” he said.

The Fed will bring rates down, but Lipson said he doesn’t expect the spreads on hotel loans will dramatically tighten.

“They did not dramatically widen over the last year, a point to remember,” he said. “However, hotels are performing well, and therefore you’ll see more lenders coming into the market in different segments.”

New construction will be constrained for a while because even if hotels have cash flowing, the banks are still in flux, Merkel said. Regulators are watching the banks closely, so it’s more difficult for them to lend.

It’s going to take a few years after the market opens up, he said. Even then, it’s going to require more equity in the deal, and it will be through banks with existing relationships.

G6 opened more than 100 hotels and signed more than 100 deals last year, Arrowsmith said. Sixty percent of that growth was on the extended-stay side, and there continues to be a lot of interest there. The key is finding the right markets.

G6 had more new-construction hotels open in 2023, and the team is excited about some new openings on the East Coast this year because the company needs new inventory there, she said. It has a Motel 6 classic that’s going to open in Galveston as well.

The company is data-driven as it plans out new locations, Arrowsmith said. G6's teams seek out the demand drivers and find pockets where the company doesn’t have hotels. At the same time, it’s also finding growth opportunities in markets where it already has a presence, such as the West Coast and Texas.

Key money and other incentives are all part of the toolbox, but not every deal needs one or should have it, she said.

“We definitely have deals where we look at what type of discounting should be done on some of the fee structure, what type of other incentives can exist or key money should exist,” she said. “It just depends. Each deal is unique.”

More than 60% of Margaritaville’s development business is new construction, said John Cohlan, CEO of Margaritaville Holdings. That’s the preferable route because it can deliver the most pristine experience. The cost of debt has delayed some of its projects but not in a material way.

Because Margaritaville is involved in different businesses, it can marshal its resources to figure out approaches that are more doable, he said. For example, the company has a vacation ownership business, which creates the opportunity to add a few floors of vacation ownership to a property which helps with lenders. It has more than 100 restaurants with restaurant operators who can engage in leases if that’s required.

“By bringing parts of the wheel together, we can help bridge the gap that exists because of what’s going on with financing markets,” Cohlan said.

There is a lot of capital out there, and there are a lot of situations where the land is owned and the equity is there, but there’s not much availability of debt as well as the cost of the debt, he said.

*Correction, Feb. 13, 2024: This story has been updated to correct information about a hotel opening.

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