[video transcription]
Hello, my name is Jan Freitag, and here’s what’s on our radar for this month:
STR released the February RevPAR results, and I sat down with Dan Peek, the COO for Hodges Ward Elliott to talk about the state of the capital markets. But let’s first start with the turmoil in the banking sector.
After the failure of Silicone Valley Bank and Signature Bank, regional lenders are feeling the impact. Traditionally those smaller banks have been the backbone of local CRE and hotel lending specifically with regards to construction loans. The fallout will likely be fewer dollars available for construction in general and hotel construction specifically. The in-construction room count has hovered around 160,000 or so for about a year and these events will likely negatively impact the number.
The February KPIs were of course not impacted by the turmoil rather they were still quite positive because of the easy Omicron comp that impacted the beginning of the year last year. Room rates were up 10% last year and RevPAR grew 16.6% but as the Omicron impact on last year’s results wears off we expect that the percent changes will normalize.
The turmoil in the financial markets impact hotel deals and I had an opportunity to sit down with Dan Peek from Hodges Ward Elliott to hear his comments on the debt markets.
So I would say were hopeful that the debt markets will heal themselves over the next 18 to 24 months. Again we do see rates staying up relatively high for the next 18 months–they’ll come down a little bit depending on the condition of the economy so I’d say kind of cautiously optimistic that we’ll see improvements over the next 18 months in the debt market.
“Cautiously optimistic.” I like it. And he basically had the same outlook for transactions overall:
If we look at our business and what my contemporaries do today, we’re busy looking at transactions and talking about people, about where we can transact with assets we own. Which ones have a reasonable evaluation, which ones have an audience, which one can result in a competitive bidding process. So we think that will lead to more assets in the market in the second half and really in the second quarter and second half of the year and so transaction volume this year will be muted in Q1 and 2 and we think relatively solid in Q3 and Q4 if the economy and the fundamentals hold up, 2024 could be a very good year in the transaction business.
I like his optimism. Thank you, Dan, so much for your insights. His comments were made before the Silicone Valley Bank meltdown, but I think taking the long view in this environment is certainly the right response to the short-term turmoil.
For now, thank you so much for watching and until next time I wish you well, I wish you health.