At the start of the 2021, Berkadia Hotels and Hospitality was bullish about a hospitality rebound in the second half of the year and this is proving true. According to recent data, occupancy for the week ending June 26 was 69.9 percent, which was the industry’s highest level in 88 weeks. With more Americans traveling for leisure expected through the end of the year and a strong development pipeline, the future is looking bright. On the wave of this optimism, we sat down with Andy Coleman, Head of Berkadia Hotels and Hospitality, to get his take on the recovery so far and what he thinks the future holds.
When we spoke back in January, your sense was that the second half of the year would see a dramatic pickup in activity. Has that proven true?
I’m what you might describe as eternally optimistic, but even I’ve been surprised by the dramatic positive outlook we’ve seen from both hotel owners and investors upon vaccine distribution. Of course, there’s still a ways to go in the recovery in our market, but the bounce back in leisure travel has been relatively swift and even business travel is starting to pick up again. We’re excited to see a steady increase in occupancies as leisure, transient business and then group business hit the road. Already conferences are returning to in-person, albeit in reduced capacities, and that’s been a really positive indicator about where we’re headed. Not to mention a great thing for business–we’re thrilled to be headed to the ALIS convention next week for the opportunity to see our clients and colleagues in person for the first time in a long time!
So what is activity looking like now? Any surprising developments?
Sales and financing have picked up exponentially since this time last year and its getting busier by the day. Of course, activity nearly ground to a halt in March of last year and the market was just starting to thaw a bit in the second quarter of 2020, so perhaps a better indicator of the strength and appetite we’re seeing is that desirable assets (think: more sunbelt, coastal, leisure destinations, extended stay, limited and select service brands are being acquired based on projections rather than historical NOIs.
Confidence is back, but Labor Day and into the fourth quarter will be the next big indicator. COVID spikes and variants, while not as threatening now that vaccines have been widely distributed in the U.S., can still cause uncertainty. On top of that, we have inflation and labor shortages to contend with.
We’re excited about this confidence but remaining vigilant on behalf of our clients. We’ve seen some really aggressive pricing from buyers predicated on a very quick market recovery. There are fewer distressed assets on the market than many in the industry had predicted, so competition is high. We continue to act as a trusted advisor to our clients to ensure they’re making the best long-term decisions in what we view as a choppy market.
What do you see on the horizon for the hotel industry for the remainder of 2021?
There’s definitely a sense that this is a seller’s market, so we expect to see more hotels come online in the second half of the year. Private equity interest will be a driver of this activity as these firms get aggressive on acquisitions. We’re seeing the most interest in properties in drive to leisure markets and core select service hotels. Like the multifamily market, Florida and the Sunbelt are hot and, of course, Coastal areas remain attractive.
While we’re very optimistic, we know there are still some challenges to overcome. Labor shortages are top of mind across the industry, as hotels compete to staff up following the dramatic staff reductions of last year.
What are your biggest priorities for the remainder of 2021?
We’re focused on building the best team in the business. Last year, even in the midst of the pandemic, we added some incredible talent to our team: industry veteran Denny Meikleham joined our Boston office and Scott Hall and Aaron Lapping are now anchoring our team on the West Coast. We remain dedicated to bringing on board new talent and continuing to develop our current team into the best one-stop shop for hotels investors and lenders.
Throughout the pandemic, we also worked closely with Berkadia multifamily and affordable experts to understand the conversion landscape as that trend was emerging. Multifamily conversion is still a great option for hotel properties that meet the right criteria, and we anticipate continuing to partner with clients to assess the value of positioning their assets for conversions and closing those sales when appropriate.
Most of all, we’re excited to be, and stay, busy! It feels great to be working with clients and closing deals and we’re going to be keeping that momentum rolling into 2022 and beyond.