Hotel Properties Attract Investors as Travel Resumes

Investors are showing revived interest in purchasing hotels, a property category battered especially brutally during the pandemic, the Wall Street Journal reported.

Citing data from CoStar Group, the Journal reported that more than $12.5 billion worth of hotels changed hands during the first three months of 2022 — the highest level for the first calendar quarter since the first three months of 2016.

“The prices of hotels for sale are surging and the share of delinquent hotel mortgages recently fell to a new pandemic low,” the Journal article states.

Factors the Journal cited in the renewed interest include the desire of investors to spend cash — but not on stocks that many observers think are overpriced — and a general sense that the lodging sector will recover from the pandemic more quickly than office or mall markets.

One advantage hotels have over standard landlords’ businesses is that they can adjust the prices they charge — room rates — on a nearly daily basis, the Journal reported.

Another data provider, Real Capital Analytics, found that hotels are fetching 18 percent more this year than comparable properties fetched a year ago, the Journal reported.

A challenge for the hotel sector is its dependance on labor, which is becoming increasingly expensive.

The Journal quoted Mark Schoenholtz, co-head of lodging at brokerage Newmark, as having said the market is especially hot for hotels serving vacationers. Markets benefitting especially from this trend, according to the Journal, have been Miami, Fla.; Orlando, Fla.; and Nashville, Tenn.

While high employment and wages are revving up the vacation market, owners of hotels that serve business travelers in cities such as Chicago and New York are not faring as well. Those owners also face the reality that one-time business travelers were forced during the pandemic to become comfortable with virtual meetings.

Related: How COVID Made Hotels Rethink Business Travel