• Lending Conditions Likely More Certain for Hotels in 2024   

Excerpt from CoStar

While borrowing costs remain elevated due to two years of interest rate increases, experts say there is still money available in the market.

While the hotel lending environment isn't expected to be nearly as favorable to borrowers in 2024 as it was in 2019, experts do believe we'll see something hoteliers have been lacking in recent years: predictability and consistency.

Lenders, investors and debt brokers seem to agree that financing, while still difficult, will have a comparatively easier path in the new year.

2024 "is going to be better than most people think," said Peter Berk, co-CEO and president of PMZ Realty Capital.

Part of the basis for that optimism is Berk believes worries about a so-called "wave of maturities" in hotels are somewhat overblown because fundamentals remain strong.

Revenue per available room "isn't growing as aggressively as it was, especially with year-over-year comparisons, but there's still plenty of cash flow, and rates are coming down," he said.

PMZ Realty Capital, which focuses on brokering debt for borrowers, was doing deals in the "mid to high eights" in the summer, and now rates have dipped below 8%, Berk said.

News that the Federal Reserve — and likely other central banks across the globe — have pivoted to start thinking about rate cuts instead increases only bolsters that belief.

Another aspect that gives Berk optimism is how hotels are increasingly viewed as a favorable asset class across commercial real estate.

"When lenders have to put out money and they look at their plate of real estate assets that they can possibly lend to, there's office, which is troubled, there's retail, which is certainly better than it was but still has a big question market around it, ... then there's hospitality, which has bounced back strong since COVID," he said.

Greg Friedman, managing principal and CEO at Peachtree Group, agreed about the relative appeal of hotels among commercial real estate.

"You look at the current value of office, and it's probably around 20% of the total commercial real estate ecosystem," he said. "So using office as an example, there's really a very limited trade to no trade in office, so those dollars groups were allocating to office [but are] trying to be diversified ... so if only a couple of points that would normally go towards office was allocated into hotels, that would be a huge tailwind to drive potentially some cap rate compression."

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