On Friday, New York City-based Sean Hennessey of Lodging Advisors gave HOTELS his perspective on the state of the U.S. hotel transaction market. Today, we follow that up with comments from Executive Vice Presidents Michele Mahl and KC Patel in JLL’s Hotels & Hospitality Group, who address the same questions with a closer focus on the struggling New York City market. Here is what they had to say in mid-May:
HOTELS: Offer your general outlook for transactions, and what will drive it?
Michele Mahl: Investment activity continues to pick up nationally with the significant weight of capital pushing pricing beyond initial expectations. There is too much capital chasing too few deals, which has predominantly targeted states geared towards quicker re-openings. Now, as other regions of the country begin to relax restrictions, capital is shifting toward investments opportunities where discounts between pre-COVID and current values still remain wide, such as New York City.
H: How will improving performance fundamentals impact M&A?
Mahl: Fundamentals are expected to improve, especially over the summer when New York City reopens and the leisure demand returns, primarily focused around Times Square assets. Investors are looking forward to 2022, creating the ability to transact on opportunities without the significant drag or burn that hotels have been experiencing since March 2022. With increased lender allocations to hospitality coupled with the significant improvement in the debt markets, transaction activity can be expected to rebound beginning in the Q42021.
H: How will current pipeline expectations impact M&A?
KC Patel: The current pipeline for deals in New York City and even nationally remains thin as sellers are focused on very targeted marketing rather than a robust process in the event that they don’t transact at their pricing. We do not foresee this changing in the near term, until we have a more clear picture on actual performance, likely following the summer months.
H: Any further comments on issues like bid-ask spread, etc.?
Patel: Bid-ask spreads remain highly scattered on transactions, which vary based on multiple factors, including pre-COVID performance, asset vintage, “market story,” required going-in capital and speed to recovery.