Any hospitality sector is good subject to having a qualified operator that can meet the projected expectations and brings value add to the asset (i.e. key money or mezz financing at cheaper than market rates). Further, a good franchise operator with a solid and verifiable track record always helps to maintain a solid ADR and Occupancy. We see and assess opportunities in both, luxury and extended stay and both are quite healthy. The decision to move forward is entirely based on your appetite of return and length of investment.
Which hospitality sector is a good bet for 2018?
We are a Chinese fund that has invested in hospitality in Asia for more than a decade. For the first time we are looking at a number of deals in North America. These deals range from luxury brands to extended stay. Which sectors of the hospitality sector do you see performing well in 2018 and beyond? What important factors should we consider?
The hospitality sector in the U.S. has gone through a bit of a slump following a long run of improving fundamentals (ADRs, occupancy levels, etc.) that were caused mostly by a bit of a market slowdown, increased competition from a lot of new product in certain markets, and reduced capital flows into the sector from both U.S. (too expensive) and foreign investors (China's investment regulations for outbound investments). Many see that turning soon, and the decline was not a severe one this time. Specialized products such as extended stay seem to have some room to run and not much in the way of new development, and CBD full-service hotels are hard to replicate and have constrained competition, which usually makes them safer investments in the long run. Those are the two areas I would look at, but for CBD full-service hotels, you are best off if your purchase is at a good basis, and a lower one than would have been possible a couple of years ago.
From what I have been seeing, there is no one answer. Blackstone just acquired several luxury-brand hotels and a couple of limited-service hotels. It seems to depend on the location, RevPAR (revenue per available room) and competition. I think competition is the most important thing to consider. There have been so many boutique brands like Aloft, which are slick and inexpensive. There have also been more brands like Yotel, which have small rooms and large common areas. To me the bottom line and most important thing about hotels is the management. If you are not planning to self-manage, you need to be able to depend on the competency of the manager in terms of day-to-day management. Even more importantly, you need to find one with a sense of how to tweak things to keep up with all of the changes in the markets.