We predict a “Stable and Improving” Outlook for Hotel Business/ Hospitality Investments in the coming year! For Buyers and Sellers we are expecting solid performance for good management and project an opportune time to leverage on property acquisition. After a favorable economy upside it is also an excellent time to sell holdings for a nice profit to buy up, exchange or other goals.
7(a) Loan Program has lowered Equity Requirements beginning Jan. 2018 for loans up to $5 million could kick start many more new business borrowers. Refinancing existing properties could free up dollars for renovations and upgrades. SBA is now lowering the required down payment to 10%. Let’s see how lenders will review their own requirements relative to this!
SBA 504 Loan Program in the first quarter of 2018 requires less equity to new loans, expansion projects, etc. so check with your lender for details. First quarter lending rates are:
Our Sources predict further growth in ADR, testing the effect on Occupancy and RevPAR
“In the long run, we hit only what we aim at. Aim high.”
–Henry David Thoreau
The Gen Z (age 18-22) to Baby Boomers (age 55-65) are a large sector but according to Expedia’s research, these American adults are moving away from buying as many consumers goods (like clothes, electronics, jewelry) in favor of “experiences, and are specifically saving for travel”. 80% say they prefer to shop for the best deals and book on-line, all in one place”.
Millenials (age 22-35) response to travel decisions, 65% weigh-in that they are currently saving for a trip this year”
Rising Interest Rates impact Cap Rates:
As FED Interest Rates rise, inflation increases the costs of doing business. Interest rate raises will also trigger higher Cap Rates. This is a complex, yet agreed upon, cause and effect in basic economics that deserves watching. True, Interest Rates and Cap Rates move in sync but not always in precise timing with each. One thing is for sure, when you apply a higher CAP rate to your NOI, the market value is less.
Higher Cap Rates reduce the market value of your Hotel and impact loans:
These higher interest calculations may impact the level of financing a bank will offer you as well as any increase bumps or Loan-to-Value ratios included in loan contracts.
Is Buying or Selling into a rising interest rate market a good idea??
As always, one size doesn’t fit all. If the reason is personal, any market conditions can be overcome to achieve your timing to buy or sell. If the reason is selling for optimum profit this could be a point of ACTION.
Note: We can’t forget that Hospitality Investments will be impacted to greater or lesser degrees in different markets by the coming higher interest rates and inflation. Cap Rates are a common indicator for evaluating Hospitality investments but are most effective in NNN lease investments (i.e. land, building leases). A Hospitality purchase benefits by multiple indicators (e.g., RevPAR, GRM, Occupancy)
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
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