Grice says: “I think everybody would like to see more capital flow and more transactions – the dislocation in the US debt capital markets has cast a pall across all of commercial real estate.

“We're seeing transaction volumes this year of around 20% from where we were this time last year. And the good news is, if you look domestically, there is a lot of liquidity in the market.” He suggests that there is no shortage of lenders despite the increased cost of capital and adds: “The bid-ask spread has widened so much that we are almost a victim of our own success in hospitality”.

For Grice, “solid cashflows” from “durable assets” mean that owners of successful hotels are very reluctant to see prices reach a level that would suit buyers having to account for more expensive debt. Despite this apparent stand-off, he suggests that deals are still happening and that “North America is going to continue to see the majority of action”.

This is not to say that other global markets aren’t of interest, he notes; adding: “We're starting to definitely see a number of groups that have been more regional, super-regional operators, expand into Latin America and look into Asia as well for opportunities because that's really where the value add is.”

Cross-border buzz

This international interest has created a cross-border buzz, according to Benjamin Leahy, partner, Cedar Capital Partners. “When I joined Cedar five years ago, I thought that the capital funding transactions would be much more siloed. So European investors would like to invest in Europe, US investors would like to invest in the US.” However, he notes that there has actually been “a lot more cross-pollination... from a funding perspective, we see a lot of crossing the pond back and forth”.

Jeremy Tobin, vice president, Starwood Capital Group, has seen plenty of instances of overseas capital active in the US. “Certainly, the higher RevPAR markets are more attractive for international capital,” he notes. “We saw a wave of Asian investment pre-Covid, and I think we're starting to see some of that Latin American investment into the US.” He suggests that hikes in interest rates performed by the Fed “have been a big headwind for transaction volumes” but draws comfort from recent action from the European Central Bank (ECB), which suggests that inflation is in decline. “Hopefully that translates to the US shortly,” he adds.

Investment objectives

Tobin says that Starwood has clear objectives when it comes to its own investment strategy, which include how the “fundamental real estate adds value to an investment”. Key criteria for deploying capital include “cashflow, well-located assets, and…the right fundamentals, whether internationally or in the US”.

He adds: “I think it's great to have the access to information that we do with professionals around the globe in the financial markets, as well as the acquisitions and investment side of the business. That gives us the ability to invest where we see pockets of opportunity.”

Notes Leahy: “We are seeing a lot more that we're interested in right now in the US, and by the way, Europe is keeping up at a pretty healthy pace, so I think it's going to be good.”

Grice underlines the trend of a flight to quality in the current investment climate. “Consumers continue to want to travel and stay in great hotels,” he notes. “The brands are really hammering home a lot of capex because they want to refresh those properties and capture those dollars. And ADR continues to increase in a lot of markets – there are a lot of really great things happening here.”

He says: “The challenge in Europe and Asia again is going to be for the larger players to get scale and find opportunities - you have to have a team that has experience on the ground; you've got to have great lender relationships; and you've got to have the infrastructure to operate once you acquire. That's challenging to do even for large platforms.”

Grice concludes: “So I think a lot of the transaction volume going forward will still be here, Stateside, but we'll see some really large deals that take effect in Europe and Asia. But there are challenges.”

By Isobel Lee