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1. UK U-Turn on Climate Change Poses Problems For Hotel Brands’ Net-Zero Hopes
The decision by United Kingdom Prime Minister Rishi Sunak to roll back carbon-footprint and net-zero policy complicates the efforts of real estate landlords and hotel operators to reach their much-publicized climate-change goals, reports CoStar News' Luke Haynes.
Sunak’s reversions include ending plans to force landlords to upgrade the energy efficiency of their properties and moving back the ban on the sale of new petrol and diesel cars by five years.
The “government’s change of direction has led to developers and real estate leaders warning its actions will hinder the sector’s ability to achieve net zero and cause further confusion amid uncertainty around the implications of the government’s proposed new energy standards,” Haynes writes.
2. Long Beach Residents Will Vote on Hotel Worker Pay Increase
The city council of Long Beach, California, voted unanimously to place a measure on the March ballot that would raise the minimum wage specifically for hotel employees, according to the Long Beach Business Journal. If passed by residents in the March election, the minimum wage for hotel workers would rise to $23 per hour in 2024 — a 31% initial jump — and then increase by an annual 6.5% through 2028, maxing out at $29.50 per hour. Los Angeles hosts the Summer Olympics in 2028.
The minimum wage applies to workers if they work at hotels located in Long Beach that have more than 100 guestrooms. There are 27 hotels in Long Beach that employ approximately 2,500 workers. Long Beach hotels with more than 100 rooms already pay a $17.55 minimum wage after a similar ordinance was passed in 2012.
“This is crucial,” said Unite Here Co-President Ada Briceño. “I think it’s important to show that the council is standing with workers, that they believe wages should increase and that people should live where they work.”
3. San Francisco Hotels Downgraded by Ratings Agency
Business ratings agency DBRS Morningstar has downgraded its ratings on six classes of Commercial Mortgage Pass-Through Certificates issued by Hilton USA Trust, stating the “downgrades and trend changes reflect [its] deteriorated view of this transaction given the expectation that the as-is values have declined sharply for the underlying collateral, two full-service hotels in San Francisco’s Union Square.”
It added that when “ratings were assigned in September 2020, the DBRS Morningstar value considered a 45% decline to the issuance appraised value of $1.56 billion, to account for the impact of ... [COVID-19] pandemic. With loan performance still not at pre-pandemic levels and declining demand in the San Francisco lodging market for the foreseeable future, DBRS Morningstar derived an updated value based on a newly derived as-is net cash flow of $47.2 million and a stressed cap rate of 10%, resulting in an updated … value of $472.6 million.”
The agency said that sustained performance declines since 2020 and the distressed San Francisco market, the collateral’s as-is value has “likely declined significantly with a loan-to-value ratio in excess of 100%.”
4. UK and US Announce Interest-Rates Hold
Both the United Kingdom’s Bank of England and U.S. Federal Reserves made independent decisions to not lower or, as feared, raise interest rates.
In the U.K., the BBC reports the decision not to raise rates came as a “surprise.” The current rate is 5.25%, a 15-year high. Andrew Bailey, the bank’s governor, said the decision was made because “inflation has fallen a lot in recent months, and we think it will continue to do so.” A statement from the bank said there were “increasing signs” high interest rates were hurting the economy.
The Wall Street Journal reports U.S. interest rates, which are at a 22-year high at 5.5%, still face the prospect of being raised. Fed Chairman Jerome Powell said: “Really, what people are saying is, ‘Let’s see how the data come in.’ They want to be convinced. They want to be careful not to jump to a conclusion.”
On the U.S. situation, CoStar analyst Chistine Cooper writes: “Market watchers are expecting rate cuts to begin in the second quarter of 2024 under the expectation that economic growth will slow and inflation ease to meet the Fed’s target. However, the path of those cuts is expected to be slow, with 2024 ending with less than 75 basis points shaved off the target rate, and 2025 seeing a continued cautious approach.”
5. 500-Room Convention Center Hotel Sought in Raleigh
Officials in Raleigh, North Carolina, have started a request for proposal process for a 500-room hotel opposite the Martin Marietta Center for the Performing Arts and close to the Raleigh Convention Center, Triangle Business Journal reports. It added that “Omni Hotel Group … is at the top of the list.”
Dallas-based Preston Hollow Community Capital is co-funding the project “without any financing contingencies,” according to the newspaper, quoting a report from the city.