By David DeMoss
Hospitality is among the most heavily affected industries caused by COVID-19. With the fear of catching the virus and worldwide travel bans, both transportation and tourism had record-low reservations and occupancy rates in 2020. Although the vaccinations are being distributed and people are hopeful about a so-called “return to normal,” hospitality is not expected to recover from this downturn until as late as 2023.
Due to this, a large amount of hotel owners and their properties are expected to default on their loans in the coming 18 months. Opportunistic hotel investment companies are standing by in hopes of purchasing these distressed locations at a discount to save owners from loan default and bankruptcy. Below, an article written by Lou Hirsh explains what groups are joining forces and how they plan on buying.
Two Southern California businesses have formed a joint venture with a $500 million investment fund that it plans to use to acquire up to 200 hotel properties over the next 15 years, a sign of increasing investor anticipation of a coming wave of distressed hospitality properties.
Los Angeles-based investment firm Bainbridge DXS and San Diego-based hospitality operator Torrey Pines Hotel Group have teamed up to scout primarily for properties in the 3.5- to 4.5-star service range in the United States, Europe and Asia, according to Torrey Pines Hotel Group CEO Michael Slosser.
“There’s a lot of capital parked out there, and we think that there are going to be opportunities for acquiring some quality assets,” Slosser told CoStar News.
The list of prospective buyers of distressed hotel properties has been growing, as more investors anticipate opportunities for acquisitions at relatively low buy-in costs over the coming year or longer.
Hotels have suffered unprecedented drops in occupancy and room rates during the coronavirus pandemic, which has brought foreign and domestic travel to a near halt. The U.S. hotel industry’s final results for 2020 show the worst year on record because of the pandemic. Occupancy for the year averaged 44%, down 33.3% from 2019, according to hotel industry research firm STR, which is owned by CoStar Group.
Many hotel owners have been able to work out deals with their lenders to keep them afloat for the past 10 months. But hospitality businesses are not expected to fully recover for years, and more hotel owners are increasingly at risk of default and could seek to sell.
Among them, Eagle Hospitality Trust, a Singapore firm that owns 18 U.S. hotels, is seeking to sell its properties after filing for Chapter 11 bankruptcy protection this week. Atlas Hospitality Group, a hotel research and brokerage group in Irvine, California, expects more hotel bankruptcy filings, and defaults could be on the horizon.
Investors have begun to take note and position themselves to capitalize on the moment when it comes.
Other opportunistic hotel investment ventures formed in recent weeks have included one by AMS Hospitality and investment firm Black Salmon, which are partnering for a planned $300 million in hotel purchases over the next 18 months.
Another venture, called Triton Hospitality Group, was formed earlier this month by industry veterans John Murphy and David Parsky, “focused on distressed assets and loans resulting from the current downturn,” according to a statement.
The Bainbridge and Torrey Pines venture includes several seasoned executives. In addition to Slosser, a former hotel general manager and executive of Howard Hughes Hospitality, partners in the high-powered new venture include Michael Riady, grandson of Mochtar Riady, founder of the Lippo Group conglomerate; Nick Chini, managing director at Bainbridge Capital and Bainbridge Consulting; and entrepreneur David Bren, son of Irvine Company founder and Chairman Donald Bren, though commercial property giant Irvine is not involved in the new hotel venture.
Slosser said the new Bainbridge DXS venture is taking a long-term approach, with expectations that leisure and corporate travel won’t fully rebound until at least 2022 or 2023, with the more lucrative group business segment, including large conventions, likely to take longer to recover.
He said leaders of the Bainbridge venture are well aware of the global competition that likely will be scouting for pandemic-related property bargains in coming months, but is taking what it considers a differentiated approach.
“The difference for us is that we plan to own these properties and also operate them ourselves for the long run,” Slosser said. “We’re not going to take investors’ capital and just buy and flip properties.”