HVS: Four factors will bring U.S. hotel transactions back to normal

They include available financing and concessions from franchisers

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There are four basic necessities for the U.S. hotel industry to recover fully from the COVID-19 pandemic, according to global consulting firm HVS: available financing, an understanding of the market’s volatility, a return of private equity and concessions from franchisers.

THE QUESTION ON the mind of many hoteliers struggling under the COVID-19 pandemic is “When will things get back to normal?” Global consulting firm HVS has laid out four objectives that must be achieved before hotel transactions can reach that point.

HVS is expecting a serious drop in individual U.S. property transactions in the second quarter due to the ongoing pandemic. The first quarter has already seen a 61.4 percent drop from the same period in 2019, according Real Capital Analytics data cited in an article by Drew Noecker, managing director and co-head for HVS’s brokerage and advisory division.

“We believe that industry participants will need clear ideas on several key topics to be comfortable transacting,” Noecker said.  “Answers to these industry questions would be expected within the next few months, as more about the COVID-19 pandemic duration is understood.”

Noecker lists four key factors which will bring normalcy back to U.S. hotel transactions:

Availability of financing

There are multiple transitional, or bridge, lenders with which HVS is currently working. However, to return to a healthy market, the CMBS market, SBA lenders, and traditional balance-sheet lenders need to return to lending.

Understanding volatility

HVS is working with many companies who have “paused” hotel lending until a clearer RevPAR trajectory emerges. When lenders feel comfortable with a specific uptrend, the traditional debt market will reopen.

Return of PE firms

One of the significant drivers of the growth in hotel transactions over the last eight years was the entry of traditional real estate private equity firms into the hotel ownership space. Those firms are currently concerned about the occupancy volatility of hotels during this health issue, but once the broader real estate private equity firms are again comfortable, the transaction market will improve.

Concessions from franchisers

Major franchise companies such as Marriott International, Hilton, Hyatt Hotels & Resorts, Choice Hotels International, and InterContinental Hotels Group have discussed possible concessions for their franchisees. Once these concessions regarding fees and renovations are understood, owners can safely bid on available assets and return the market to a healthier state, concludes HVS.

Previously, HVS forecast that the pandemic’s impact on the U.S. hotel industry could lead to a multi-billion dollar loss of lodging tax revenue.