Over the past year, I've heard an awful lot from hoteliers, lenders and brokers that interest rates that have been floating at their highest level of this millennium actually aren't that bad from a historic perspective.
What's more, if you take a longer-term view and factor in how low rates have actually been in the era following the Great Recession, rates slightly over 5% just aren't that bad.
Maybe they weren't that bad, but I'm guessing after the Federal Reserve's decision earlier this week that most of the people are in fact feeling better.
If you've had your head in the sand all of this week, the major news you missed was an unexpectedly deep interest rate cut, dropping 50 basis points instead of the 25 basis points projected by analysts. Wall Street apparently had the inside track on the news as many major news outlets noted the stock market was pricing in the eventual 50-basis-point cut even before the official announcement.
My colleague Bryan Wroten took the first swing at the news for us, noting significant optimism for deals and investment due to lower rates.
Obviously, it will take some time before lower interest rates translate into more deals and development. But even keeping in mind that gap between cuts and reality, there has to be a lot of really optimistic hoteliers across the industry.
In fact, it's hard to think of reasons this isn't out-and-out good news for hoteliers.
C. Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, said that the benefits of lower interest rates will be widespread across our industry.
“For hotel [real estate investment trusts], a higher likelihood of increased transaction activity,” he said. “For the C-corps, a tailwind to unit development, and, for vacation ownership companies, better net returns on their securitizations.”
And Adi Bhoopathy, managing principal and head of capital markets for Noble Investment Group, said Noble's expectation is for a marked increase in deals activity early in 2025.
In a happy coincidence for us at HNN, we featured some news earlier this week about Dan Peek joining JLL's hotels and hospitality team in the Americas, with Peek and Kevin Davis saying they're poised for a big year next year.
Apparently Jerome Powell has their back in that regard.
Now the challenges will go back to being what they always is for hotel investment: Finding the right locations, right brands and right overall asset to put these suddenly more favorable interest rates to work.
Let me know what you think on X, LinkedIn or via email.
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