Five Questions in Five Minutes With the Hospitality Team
Third Quarter Update on the Hospitality Market in the Intermountain West
Mountain West Commercial’s Hospitality experts R. Michael Francis, Wes Christensen, and Alex Nielsen take on answering five pressing questions about the current hospitality market for the rest of 2021 and looking into 2022.
1. After going through a pandemic most hotel owners want to know what the value of their hotel is today.
What we are finding is that most hotels are at or above 2019 evaluations and are not trading at a discount. So far this year, we have closed on $58 million with eight more to close by the end of the year. The way that buyers are underwriting and evaluating these hotels is that they are pretty much throwing out 2020 numbers and looking at 2017, 2018, and 2019, pre-pandemic operating levels.
2. What is the state of the hotel market
Year-to-date hotel transaction volume has increased by 300% compared to 2020. The majority of the transactions are coming from private equity. The vast majority of the equity was largely raised during the pandemic. The capital was raised to scoop up distressed hotels, but that didn’t happen. It has created a scenario where we currently have more buyers than sellers at this time. Buyers that didn’t buy last year, now have the capital they need to place which is driving up pricing and interest across the intermountain west.
3. Are hotels trading at significant discounts?
During the first quarter, there were some hotels trading at discounts, however, by the second quarter of this year, the economy’s momentum started picking up and transactions were starting to trade at 2019 levels and in some cases higher than 2019.
4. What are the biggest challenges that hoteliers are currently facing?
The first challenge hoteliers and other business owners are facing is the continued uncertainty of when Covid-19 will end. Secondly, like many workforces, hospitality labor has been a major strain with highering enough staff to cover the pent up demand to travel. And lastly, obtaining supplies to fulfill in the hotel with the supply chain being so unstable at this time.
5. What can we expect to see in Q4 and in 2022?
We have recently seen hotel pricing level out or go back to pre-Covid levels. Leisure market areas such as hotels near National Parks rebounded quicker. Smith Travel forecasted, with summer coming to an end normally leisure travel is supplemented by business travel and corporate events but with the Delta variant, we may not see the demand come back until 2022. Smith Travel is also predicting we may not see full vacancy until 2023 and RevPAR (Revenue Per Available Room) and ADR (Average Daily Rate) levels back up to normal by 2024. While we are still facing head winds and staff issues, we still are still seeing a strong economic recovery underpinned with strong consumer demand.