But money appears to be trickling back into the hotel sector, including one fund with backing from retired baseball great Alex Rodriguez.
“It’s going to be selective,” said Richard Clarke, a senior analyst covering global leisure and hotels at Bernstein. “If the business case is very strong, then you have been able to get these projects approved.”
Hotel occupancy rates and revenue plummeted this year due to the pandemic and, while they began a summer recovery, are once again retreating due to rising case counts around the world. This volatility nixed deals in the planning stages where developers were beginning to seek construction loans. But it also threw a giant question mark around how to value an existing property, effectively screeching the hotel investment sales market to a halt as well.
That appears to be in the rearview, at least in some sectors.
CBRE Hotels in early November secured $170 million in financing for the Newport Beach Marriott Hotel & Spa in Southern California, billed as the largest single-asset U.S. hotel transaction since the beginning of the pandemic. The real estate firm also handled a sub-$25 million deal on a smaller hotel in South Florida as well as a larger hotel deal last month in Boston.
“That process had a deeper showing than I would have expected, given the pandemic,” said Mark Owens, head of hospitality capital markets at CBRE Hotels. “For great hotels, great assets, and borrowers, the capital is selectively available.”
CBRE also closed on a ground-up hotel construction loan in Los Angeles last week.
“Where there’s creativity and flexibility, there’s a market to be made,” Owens said. “It takes having not just the relationships with the lenders but the ability to be collaborative and think through how to structure various components that you may not have to think through in a normal operating and lending environment.”
What constitutes financing “creativity” is in the eye of the borrower and lender.
This can include anything from putting up more of one’s own money into a project to signal to lenders it is a safe bet to turning to alternative sources of financing like private equity firms, family offices, or very high-net-worth individuals looking to invest in a hotel project.