Is it time to buy or sell hotels? Both
There is a reason Patrick Thomas from the WSJ starts his article “The best place to make money in the world of finance and investment may not be at a bank but in real estate”.
According to a Wall Street Journal analysis of annual pay disclosures by hundreds of big U.S. companies, real-estate investment trusts had some of the highest median worker pay among financial, real-estate and insurance companies in 2018. Follow the money is always good advice.
Real Estate as an investment has been consistently beating the S&P over the last 20 years, 10.6% vs 8.6%, and with hotel occupancies at all-time highs, hovering around 70%, CRE Hotel investments are specially attractive on both sides of the equation. It begs the question if you are own hotels, “is it time to buy some more or sell a few?”
Even though only time will tell, we believe a good strategy is to play it safe and realize some profits if you are a long-term hotel property holder.
The hotel industry is extremely competitive, growing some 2% a year, new rooms with the latest technology and looks, force all other properties to invest in major renovations to keep up. This cycle of major renovations every 7-8 years is best done when there is a change of ownership, as it is easier to raise funds for an acquisition that includes a renovation, and an expected improved bottom line, than suffer through such a renovation, with the unavoidable hit to the RevPAR.
The funds from the divestiture, let alone those that would have been used for such a major renovation, can much better be deployed into a new acquisition that is a better fit for the existing portfolio and group investment strategy, reallocating capital much more efficiently than simply maintaining the status quo inertia.
And the best way to accomplish some liquidity is through an off-market transaction, where you can avoid the disruption and many of the hassles such a process entails, and minimize or even completely avoid commissions. Selling an off-market hotel property is part art, part science, but done right it provides the best and quickest way to cash out.