Some might call it round two of the pandemic playbook.
Faced with perhaps the greatest challenge in memory, hospitality property and asset managers performed admirably over the past year and a half in stabilizing individual hotel properties and portfolios: operationally, financially and with respect to people, staff and guests. It’s been a long, arduous stretch and recovery isn’t complete, especially for corporate and group travel. However, a liquidity crisis has been avoided and we have renewed confidence within our industry, having learned a lot about ourselves in the process.
Coming out of COVID, a sense of normalcy is demonstrated in several ways, including a still-ambitious development pipeline from the major brands and independent developers; and a clear desire by Americans to travel and enjoy weekend getaways. As an example, college football is back in full force, helping drive occupancy and rate in many drive-to markets.
For the most part, we have also avoided the commotion and overly feisty consumers experienced this past year by the airlines industry, while we must acknowledge the importance of air travel for many of our locations. Still, hospitality consumers are starting to get a bit frisky, expecting pre-pandemic levels of service and, in many cases, food and beverage operations. Enough of #skimpflation already.
Investment Prospects Look Strong
Also, on a positive note, there is substantial investment interest in hospitality, both from established capital groups, many of whom have a mandate to deploy funds, and newcomers to our space. At the same time, the major brands are expected to start enforcing maintenance and property improvement programs that have been deferred, while lenders have probably reached a limit to debt forbearance.
As a result, we expect the pace of hotel transactions to increase in the coming year, with buyers and sellers increasingly motivated to strike deals. This prospective transaction environment presents an outstanding opportunity for mid-sized, full-service property managers. They are well suited to help investors — veterans and rookies alike — find capital partners by leveraging existing industry relationships and their intimate market knowledge. In particular, these same property managers are well positioned to advise on ownership transitions with respect to pre- versus post-sale property improvements, what market competitors are up to, realistic pricing and brand negotiations, including for potential rebranding or soft branding.
Property management entities will have varying appetites for taking equity positions in properties, as opposed to being strict third-party property managers and advisors. We have already witnessed some new acquisition funds being raised by partnerships of management companies and equity sources. As we move further away from pandemic days, it will be interesting to see how these trends play out.
The real goal here is to see new investment become wise investment, paying the right price for the right property at the right time. In this respect, property management firms with great local knowledge and a track record of outstanding owner relationships can bring the correct mix of enthusiasm and discipline, understanding both finances and consumers, to the investment table. If so, the hospitality industry can experience a stronger recovery and longer-term prosperity.
Kerry Ranson is the CEO at HP Hotels.
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