On the far side of COVID-19, guests will look for hotels that feel normal but offer something different, and how hoteliers and hotels change and adapt to the pandemic will be a major selling point to future investors and lenders.

Hoteliers who make the right investment decisions in regard to debt and repositioning will benefit from historic consumer spending power, according to speakers on a panel titled “Stick or Twist” at the online Hotel Optimization Conference.

Rachel Moniz, executive vice president of operations at HEI Hotels & Resorts, said the future will center on creativity in all aspects of a hotel. “We do expect transaction volumes to increase,” she said.

Debt markets already are starting to open up, but “it is still challenging, and we have seen no [commercial mortgage-backed securities] activity; banks are still very conservative in their underwriting,” Moniz said.

She said she has noticed deals of 600 basis points over the London Interbank Offered Rate on a loan-to-value of 65%.

“We are seeing some debt coming in, and ones that we can be excited about are beginning to show,” she said.

Sarang Peruri, chief commercial officer at Oxford Capital Group and partner at Oxford Hotels & Resorts, said he agrees debt funds are being more active, but he thinks 600 basis points under Libor is at the lower end.

He said he has noticed debt structured with lower-leverage senior debt mixed in with some mezzanine debt.

Peruri said one major difference between the COVID-19 pandemic and the Great Recession is bank balance sheets today are in far better condition.

Notable deals include the Wells Fargo Bank underwriting in November of the $100.1 million sale of the Marriott Napa Valley Hotel & Spa to KHP Capital Partners and the December $150 million refinancing on the Fairmont San Francisco, he said.

“Lenders are being extremely selective, partnering with the markets and sponsors they like, but it is nice to see activity,” he said.

Brian Waldman, executive vice president of investments at Peachtree Hotel Group, said with lending tight, many balance-sheet lenders are inactive.

He said the situation is tricky, as lenders cannot ask for forbearance and extensions, but credit committees require deals activity.

“The track record is all. [Securing loans] for new relationships is very difficult,” Waldman said.

He added his firm is acting as more of a bridge lender.

“But we are seeing a lot of runway capital for good assets in fundamentally good locations and that are not over-leveraged, but [in which the owners] are simply tapped out. We’ve done [bridge loans] behind bank lenders and CMBS to provide some capital,” he said.

Capital also is being raised, Waldman said, around property assessed clean energy, or PACE, lending, and for environmental and sustainability considerations and improvements.

PACE funding is available in 36 U.S. states, according to PACENation, an association representing this push.

“There also is retroactive PACE for hotels built in the last couple of years. It is essentially an assessment on your mortgage, but it is an attractive deal, fully amortized,” he said.

He added that opportunities are still being hampered by wide bid-ask spreads, a reason Peachtree is doing more now on the debt side, rather than on the acquisitions side.

Biran Patel, partner at BHP Investments and chairman of the Asian American Hotel Owners Association, said the presence of a brand now is less of a selling point than the relationships between an asset’s players. The need for differentiation will be more marked when the pandemic is over.

He said when brands such as Tru by Hilton and InterContinental Hotels Group’s Avid were launched, “clients were very quick and busy to sign up, so that leads the brands to think they are making the right decisions, but there are no real differentiations [between these brands].”

“We will see more impact from COVID-19 on this,” he said.

Waldman said owners will be looking hard at the material benefits and costs of joining a brand.

He added that lenders still look for a brand, but now there is more value in the brand family. “It is about finding the right platform for the destination any hotel is in,” he said.

HEI’s Moniz said from an acquisitions strategy perspective, limited-service hotels in secondary markets hold better value. Most customers remain interested in the hotel segments that have always interested them, she added.

“There are still customers buying into their lanes, so brands, yes, but it is all leisure, and currently [guests] are attracted to destinations where [COVID-19] restrictions are not so rigid,” she said.

Oxford's Peruri said he is becoming more analytical in looking at the real benefits and costs of reservation systems, loyalty programs and the like.

“In many cases, [brand] fees are justified. The case against is that the added costs do add a risk, and you have more operational leverage if you do not have those costs dragging you down,” he said.

“Right now, the case is for leisure, although that will change. The world we are in now will not last forever,” he said.

Waldman said that however large a brand family is, its various reservation and loyalty systems are still only so large. While supply currently is not a problem, and there is a lack of construction financing, if there are eight hotels in a city, probably all demand is coming through the same platforms.

Hotel supply also will start to creep up when COVID-19 is over, panelists said.

Patel said opportunity exists where it is possible to downscale an asset to attract the current demand, most likely to a high-end economy segment from a mid-class one.

Peruri said a good use for any current capital is in renovation.

“I am big fan of changing up floors to hardwood. We are constantly reinventing ourselves in design, not just operations. If you have tired bathrooms, that might be a good source for using cash,” he said.

Moniz said food-and-beverage is an obvious game-changer.

That, along with “the expansion of your outdoor space … will grow in popularity,” she said.

“We are reprogramming product for winter — [dining] igloos, heating. These are points of differentiation and create a little bit of a billboard effect,” she said.

Panelists said eventually guests will return to the hotels that give them the best experiences.

“I believe in the pendulum. … Companies had a good 2020, because of slashing expenses, not because of revenue, and because of the strategies they put in place for the last three, five, seven years,” Waldman said.

“The vaccine rollout will take time, so obviously the second half of the year will be better. Do we need to be back to 2019 levels? I would like to, but 2017 levels, that would be fine,” he added.

Peruri said “on the group side, there still is business on the books in 2021; it will be interesting to see if any of it sticks.”