For the first time in years I am walking away from an industry happy-speak event, also known as a hotel investment conference, actually drinking the Kool-Aid. Leaders and investors whose opinions I value and trust told me at this week’s NYU event that the runway for extending the industry’s rally remains pretty long — maybe only at the halfway point of the cycle — when many others say it has passed its peak and further down the road.
From a macro perspective, the sages point to interest rates — for good or bad — that will remain very attractive for M&A; relative strength in global economies, including a bottoming Europe; a very reasonable supply-demand quotient for the near term; abundant equity coming from parts near and far; and an expanding customer base with a ferocious travel appetite. Of course, no one can predict Black Swan events, but even geopolitical turmoil has settled a bit.
Personally, I have been more concerned about global economic conditions, and depending on who you want to believe there are plenty of contrarians with bearish outlooks. But never one to wear rose-colored glasses, even I feel better about the next few years after talking to the senior members of the hotel development world with great track records and multi-platform, global investment strategies. It is those more senior members of the hotel investment community who have seen it all, been through multiple cycles and deliver consistently outstanding returns who always have my ear.
The equation hasn’t changed: find distress with solid upside in great locations, and acquire at a solid discount to replacement costs. All you have to do is look at the strength of once-suffering Miami, San Francisco and Hawaii. So it came as no surprise to hear the likes of Blackstone’s Jonathan Gray point to India and its new hospitality business-friendly government; China and its still healthy growth and more recent interest in private capital solutions; and Europe, which still has to deleverage and is expected to grow slowly, but is now presenting investment opportunities due to its stress.
I left the NYU conference Tuesday feeling better about the global hotel industry’s plight than I have in several years. I sure hope the opinions of the most trustworthy in my mind are right.