By Sean McCracken
Hotel News Now
August 12, 2021 
Owners Expect Pace of Hotel Transactions Could Quicken in Next 18 Months
Jonathan Stanner, CEO of Summit Hotel Properties, (left) and Rick Takach, chairman and CEO of Vesta Hospitality, speak during the 2021 Americas Lodging Investment Summit. (Sean McCracken)]
Jonathan Stanner, CEO of Summit Hotel Properties, (left) and Rick Takach, chairman and CEO of Vesta Hospitality, speak during the 2021 Americas Lodging Investment Summit. (Sean McCracken)By Sean McCracken

LOS ANGELES — Hotel owners who thought they were experienced and poised to make the most out of a crisis following the Great Recession had to learn the hard way just how bad things could get.

Speaking during the "Boardroom Outlook: Investment Strategies/Assets" panel at the 2021 Americas Lodging Investment Summit, Rick Takach, chairman and CEO of Vesta Hospitality, said he understands why the previous year and a half could scare investors away.

"2020 hit, and obviously the 2009-2010 numbers are gone. They're out the window," he said. "Anybody who would look at 2020 might not ever want to invest in the hospitality industry again. However, I think it's an asset class that's here to stay."

Both Takach's company and real estate investment trust Ashford Hospitality Trust went into the latest crisis with leverage levels around 60% to 65%. Ashford Trust CEO Rob Hays said his company's leadership team quickly learned that recipe didn't work despite yielding positive results during the previous downturn.

"We went through the financial crisis at that leverage level and did quite well, but we just didn't underwrite the heavy loan at negative (earnings before interest, taxes, depreciation and amortization)," Hays said, adding his company will carry less debt going forward in response to the pandemic.

Takach said ultimately he doesn't expect his company to change its underwriting philosophies too much coming out of the crisis.

But Homi Vazifdar, managing director of Canyon Equity, said it's important to remember that performance did not crater for all hotel assets during the crisis, and a lot of investors could learn from what still performed well. He said after closing his company's ultra-luxury properties during the onset of the pandemic, from May through December those same assets ended up "running roughly 100% occupancy with rates that were at a 40% premium to pre-COVID."

"It's taken such a long time to figure out that the ultra-luxury segment is the most bulletproof segment in lodging, if you have the guts to build a resort that costs $2 million per key," Vazifdar said.

Historically, one of the silver linings of economic downturns has been the availability of deals for hotel assets at distressed pricing, which panelists agreed hasn't really cropped up at the levels expected this time. That could still change going forward, though.

"Here was the expectation that there was going to be a whole bunch of deals out there [with] pretty steep discounts and distress that hasn't really materialized," said Jonathan Stanner, CEO of Summit Hotel Properties. "I think there have been a fair amount of lenders that have been willing to kick the can."

He doesn't expect the patience and forbearance to last forever, though.

"I don't think that movie is over. I think there will be more transactions," Stanner said. "While things are better, this is an industry that's gone 18 months with very, very little capital deployed into these assets, so we'll see and we'll continue to try to be opportunistic around wherever we can deploy capital."

While there are still opportunities for transactions, investors who expected to go bargain shopping might be disappointed in the near term, Stanner said.

"By and large, you don't walk into a meeting and talk about discounts to 2019 anymore," he said.

Takach said his company has sold assets at prices exceeding the valuations set in 2019, but that's driven by markets and the individual assets, with values still depressed.

He said overall Vesta is looking to buy more than sell, but it's difficult to do that in the current environment.

"It's tough right now," he said. "I've made a number of offers recently, and I'm just not even close to the final bid price on some of these packages."

Vazifdar said with some assets, prices are inflated to a point that it makes no sense to not sell.

"There are a lot of stupid people in the world today who are paying crazy numbers for full-service hotels," he said. "I think this window is going to be around for about 18 months, so you have to be a seller today instead of a buyer." 
Hotel Investors 'Kick the Can' on Acquisitions as Distressed Assets Haven't Materialized (