HVS Brokerage Insight: Outlook for Transactions in the Wake of COVID-19

As of February 2020, the market remained strong, with low interest rates continuing to attract investors despite some softening in the outlook for the industry. It’s a whole different world just a few weeks later. The coronavirus (COVID-19) has directly impacted the hotel industry through the expeditious cancellations or postponements of large events and business travel across the country.
Authors: Dustin Robinett and Kelson Reimer

DENVER, CO, March 19, 2020: As of February 2020, the market remained strong, with low interest rates continuing to attract investors despite some softening in the outlook for the industry. It’s a whole different world just a few weeks later. The coronavirus (COVID-19) has directly impacted the hotel industry through the expeditious cancellations or postponements of large events and business travel across the country.

So how is the market for transactions?

Deals are still getting done, but they need to make a lot of financial sense. The best opportunities that we are seeing in the market right now (those with the highest likelihood to transact in the near term) meet one of the following criteria:

 
  • Hotels of newer construction in gateway markets benefiting from good locations with strong market fundamentals at an attractive cost-basis

  • Hotels in heavily distressed markets, particularly those with high exposure to oil prices, with motivated sellers looking for all-cash buyers

  • Temporarily or situationally distressed assets that rely heavily on group business in all markets

If deals are to continue to move forward, both buyers and sellers will need to keep a level head and a long-term, rational outlook on investments when it comes to the road to recovery. After the last two major corrections, which occurred in 2001 and 2008, the length of time until full recovery of ADR was twice that of the correction itself; thus, the longer this goes, the longer the recovery.

Cash buyers today have an advantage over those who require lending, and cash-heavy buyers should be seeking to utilize that advantage now to secure high-quality real estate at a good price. While the market environment will likely lead to more distressed buying opportunities, appealing to more opportunistic buyers, this is a great time to make strategic, long-term acquisitions of high-quality real estate.

This year is going to test the resolve of every hotel owner. There are buyers for every deal, today, right now, at the right price. We are available to talk to you about our listings presented here and about the challenges you are facing in this environment.

 

About HVS Brokerage & Advisory 

The Brokerage & Advisory Division is a specialized group within HVS that offers brokerage, debt and equity financing, and investment search services focused exclusively on the hospitality industry. With a global footprint and over 40 offices nationwide, HVS’s hospitality intelligence and extensive expertise will help you achieve the results you want. As of January 2020, the group has ten engagements in excess of $100 million that it is actively marketing for sale.


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