Published 4 months ago · Updated 4 months ago
Is hotel property bargain hunting a realistic strategy?
Investors and Sellers expectations are difficult to align
One of the key take-outs from talking with panel put together by the Ritossa Family Office on June 2nd is the fact that there is an apparent disconnect between buyers and sellers expectations in the commercial real estate in general and hospitality in particular.
Listening to the market chat about the dismal state of affairs of the hospitality and travel sector has naturally led many investment houses to shift their acquisition strategy to concentrate on distressed opportunities.
The CEO of Tactical Management in Dubai was telling Mallorca recently that the way they are now looking at hospitality property investment is to discount from the pre-Covid property purchase value any revenues from the remaining 2020 and 2021 trading periods.
For the CEO of Gulf Sotheby's, however, there are very few real distress sellers out there at this point. As a reason, he explained that the timeframe between when the crisis started affecting business and now has been relatively short. For hoteliers catering to the holidaymakers, the period between mid-March and end of May is often still low season. Also, the rapid mitigation measures taken by companies coupled with government support in many territories has resulted in most hotel owners capable of shouldering the blow in short to mid-term. As a clear example, Mallorca has been approached and is advising several owners on restructuring their corporate debt. Why not take the opportunity when banks are more responsive, right?
For institutional funds, holding on to their real estate assets still makes a lot of sense, given the uncertainty in the global economy and quantitative easing. Often funds can offset the loses of some properties with gains from others resulting in low yet positive yields for their property holdings which in contrast with portfolios holding other asset classes.
Looking forward, the world is getting out of confinement, and many hotel owners in the Northern Hemisphere hope for a chance to salvage the remaining of the summer season. Even the world equity markets seem to be looking at the future similarly and have been showing positive signs since the end of May. Real distressed hospitality properties will, therefore likely remain rare until the dust settles and the long term impact of the COVID crisis its impact on the global economies is clearer. The most likely victims are likely to be found in the heart of metropolitan cities where the business travellers and convention guests have almost disappeared and should not be returning very soon.