PHOENIX — The hotel recovery has not been felt equally across all U.S. cities, and as more and more private investors look to jump into the hotel space, many are left wondering where the best destination is for their dollars.
During the "Market Insights: Short-and Long-Term Investment Outlook" session at the 2022 Lodging Conference, a panel of hotel industry investment experts looked at several key markets across the U.S. as potential targets for capital.
Atlanta
While admitting Atlanta has "all the components" an investor would look for, Rob Leven, chief investment officer for Procaccianti Companies, said the "lower barriers to entry" there make supply the top issue for hotel investors.
"If you're looking at a long-term investment, it's got convention business, it's got great college and university presence, a big medical presence, lots of diversified corporations, business and leisure activity, and a lot of big events come through in Atlanta," he said. "The biggest issue with Atlanta is the control over supply."
Jonathan Stanner, president and CEO of hotel real estate investment trust Summit Hotel Properties, agreed with Leven's long-term optimism on Atlanta. Summit holds four properties in the market currently, but Stanner said if Summit were to expand its exposure there, he'd be more apt to buy than build.
"I think it's got a good long-term outlook and demand growth into the Sun Belt is generally favorable," he said. "Atlanta has some real positive trends going. Our experience is we've seen the Decatur and Midtown markets recover faster than what we've seen from downtown. We're just starting to get some of that convention base."
Damian Gordillo, president and co-founder of brokerage Marquee Lodging Advisors, said he agrees Atlanta is not a market to target new-builds right now, although panelists said building is a challenge in most markets at the moment.
"That's kind of where most folks we're working with have been leaning to, and we're seeing quite a slow pace of folks wanting to do new-builds," he said.
Abhay Bakaya, senior vice president of development for SH Hotels & Resorts, agreed.
"If you're building or converting something in today's cost environment, how much can you really justify the uplift you're going to get given where some of the other hotels might be positioned?" he asked.
Nashville
Panelists said Nashville is a market that continues to defy conventional thinking in its growth trajectory. While there are many signs it should have reached its saturation point, especially when it comes to hotel supply, the market continues to absorb new hotels with growth unabated.
"I like Nashville a lot," Stanner said. "In fact, we're just finishing a renovation there right now of one of our assets. We have a couple of assets in Nashville."
Much like Atlanta, you'd point to supply growth as the concern there, Stanner said, but it's not enough of a concern to stop investment and he remains "a long-term bull" on Nashville.
"I think if we rewind the clock, it's probably been an undersupplied market for a long period of time, and it really is catching up with the demand."
Leven — who noted almost any hotel investor loves Nashville — compared the city to Austin, Texas, which he said was a market he was more skeptical of than he should have been.
"One of my bigger mistakes was to not buy into Austin 10 or 15 years ago because we could never ever get comfortable with the supply growth and the supply pipeline in Austin," he said. "Nashville has a very similar trajectory."
San Francisco
Long one of the marquee markets in the U.S., San Francisco continues to face significant challenges, and panelists believe that will remain the case until conventions return in force to the city. But Bakaya said there is hope on the horizon, and his company just opened a property in the city with Pebblebrook Hotel Trust that has been "off to the races" since its opening.
"The urban core has been hit pretty hard by COVID," he said. "But we retain a positive outlook to it. We think we're already seeing change in the city."
Gordillo said his company has been involved in several deals in San Francisco since the onset of the pandemic, and it is currently "working on a couple assets" there. But overall, San Francisco remains a difficult city to buy a hotel in despite persistent issues.
"The bid-ask spread is pretty deep right now," he said. "To give you some data, pre-COVID around the airport market, you were operating at a $140 or $150 [revenue per available room] at select-service assets. Through June of this year, that market has not recovered, and it's closer to a $78 RevPAR market, but pricing guidance has really not changed. Most folks are looking for anywhere from $300,000 to $400,000 a key from your run-of-the-mill Fairfield, Hampton, Hyatt Place or Hilton asset."
Miami
Miami was the darling of the early stages of the hotel industry recovery, but the question is how long it can last, panelists said.
Bakaya said the comp set for his company's 1 Hotel South Beach has seen RevPAR grow roughly 30% year over year, which is both great and makes for a more difficult competitive environment.
Unlike many other markets, though, Miami is still classified as a place to build, Bakaya said.
"For anyone who hasn't locked in [general contractor] pricing, the escalation is starting to show up, but fortunately so far the market's [performance] has surpassed that," he said. "So it's still looking bullish."
He added his company has several development projects active in Miami, including a Treehouse hotel and a mixed-use tower.