Key Insights from the International Hospitality Industry Investment Conference

June 10, 2024

Market Fundamentals

Normalization was a persistent theme at the NYU Hospitality Investment Conference (NYU IHIC) this week. While RevPAR growth forecasts for 2024 were decreased by all the major prognosticators, many feel that the fundaments are stabilizing. At the end of 2023, STR projected a 4.1 percent increase in RevPAR in 2024. During the first four months of 2024, RevPAR growth in the US was 0.5 percent, causing STR to reset the RevPAR forecast for 2024 at 2.1 precent. LARC is projecting a 1.8 percent RevPAR increase and HVS is projecting an increase of 1.7 percent for the same period. These rates are below the average RevPAR growth rate from 2014 through 2023 of 3.1 percent reported by CoStar, but many feel that there is more certainty and conviction in underwriting at present.

Growth Opportunities

On a macro level, the continued growth of the middle class globally, and a shift post COVID to prioritizing experiences over purchasing goods are supporting demand growth, as well as more flexible work schedules allowing for more leisure trips. Group demand is anticipated to lead growth this year in the US, and additional growth is anticipated in the business travel segment and with inbound international travel. At the same time, inflation may help support average daily rate growth, particularly in the upper-tier segments. However, increased labor costs, along with higher real estate taxes and utilities expenses are exerting downward pressure on profits.

Investment Market

Sentiment was generally positive on the investment side. Debt is available, spreads are tightening, and the bid/ask is narrowing. The cost of capital is high, but it may remain high for some time to come. Many market participants are coming to terms with current rates. Interest rates on hotel loans vary depending on the use of the funds and the type of vehicle selected, but have generally been at current levels from 1995 to 2000 and again from mid-2006 to mid-2007 according to data collected by HVS. A 25-basis point decrease in the fed funds rate will not have a meaningful impact on hotel lending. The impact of a fed rate decrease is largely psychological, but if investors wait for this sort of validation, they may miss potentially lucrative investment opportunities.

These are generalities summarizing the market conditions in the US. Conditions vary market to market and up and down the chain scales. At the asset level, occupancy and average daily rate forecasting is dependent on the specific types of room night demand accommodated by the hotel. For financing and re-financing hotel properties it is important to understand the business plan for the asset, which of course can vary considerably from project to project. Capright has senior hotel valuation specialists in Chicago, New York City, Miami, Dallas and Los Angeles that can assist with this type of project specific analysis.