At the end of 2019, prognosticators expressed cautious optimism about economic prospects for 2020. Economic fundamentals, such as an 11-year upward trend in the economy, continuing job growth that has brought a growing number of participants back into the job market, and continued consumer confidence indicated moderate growth in the economy should continue.
However, 2020 has not started the way many had anticipated. A confluence of events, ranging from a very competitive and divisive U.S. election year, a coronavirus outbreak worldwide, BREXIT without working agreements between Great Britain and the European market, tariffs, and other geopolitical concerns have created an atmosphere of uncertainty around the globe. “If I had to put a word on the coming year in terms of the economy and the market, the word would be deceleration,” says Hugh F. Kelly, Ph.D., CRE Special Advisor, Fordham University’s Real Estate Institute. “At the very least, we should be focusing on things slowing down in 2020.”
According to the most recent RCM/Lightbox Investor Sentiment Report, many in the commercial real estate market are evaluating target markets and identifying potential acquisitions with caution. In addition, competition from institutional investors purchasing portfolios in core markets, as well as in expanding secondary markets, have pushed other investors to seek yield in secondary and tertiary markets.
The world economy is resilient, and it withstands ebbs and flows and even significant disruptors. The mid- and long-term prognosis looks positive, even if the near-term is bumpy and unclear.
Thus far, lender discipline has kept the commercial real estate industry on a stable trajectory. The low-interest-rate environment has made investment in assets attractive. Lenders, however, have adopted a defensive posture while evaluating underwriting. They are carefully examining the stability of cash flow in place as well as evaluating the ability of the investor to service debt during a lull in the market.
In the commercial real estate business, many anticipate a flurry of activity in the first two quarters of 2020 as investors seek to capture the current low-interest rates and put their capital to work. As the U.S. political race heats up over the summer months, some investors may pause as they evaluate the potential impact of possible outcomes. At this time in 2021, the United States elections will be in the rearview mirror, as well as hopefully the COVID-19 outbreak. The world economy is resilient, and it withstands ebbs and flows and even significant disruptors. The mid- and long-term prognosis looks positive, even if the near-term is bumpy and unclear.
Given this uncertain environment, our advice to our customers and clients is to continue to cautiously evaluate each opportunity, whether it is an acquisition or a disposition. Each hotel in an owner’s portfolio is unique, and the decision to hold or sell should be made based on the specifics of that building and that submarket. Likewise, for purchasers, value can still be found in many markets based on local supply and demand factors. Consult with trusted advisors and stay the course. That strategy rarely fails.
Trouble is most of the wise words come from persons who have not borrowed money to own and operate hotels. The impact of debt repayments and loan covenants is felt in your guts if your signatures were appended to the loans. Same way huge loan amounts are “ underwritten by basically inexperienced recent college graduates who will approve loans if they can right mark the boxes on their monitor without any regards to the 3Cs of lending etc.
Or how else would someone explain loans of a billion dollars to OYO etc.
We truly live in weirder times…