HOSPITALITY.

• Author: Gatto, Adam A.

WITH A COVID-19 VACCINE on the horizon, many are hopeful that the prolonged downturn in the lodging sector will begin to recover. However, wavering consumer confidence, a rising number of virus cases, and slow government response to the pandemic have instilled concern that operating levels will take several years to return to pre-pandemic valuations. Even through the uncertainty, opportunistic investors are taking advantage of deals in the hospitality sector as the U.S. embarks on the road to recovery.

As the pandemic continues to linger, hotel investors remain cautiously optimistic while hotel and resort properties continue to trade. However, hotel sales volume is at an 84 percent decline from October of 2019. Private market transactions are being underwritten at a 20 percent discount compared to pre-pandemic valuations to be able to achieve a 10 percent unlevered IRR, and a 15 percent discount at a 9 percent unlevered IRR. This aggressive underwriting is not well received by sellers at this point in the market cycle. Overall, prices of hotels sold this year have only fallen 3-4 percent. The challenge remains in closing the gap in price expectation between buyers and sellers.

The second half of 2020 brought additional players to the hotel marketplace as distressed and opportunistic assets begin to present themselves. Higher cap rates on adjusted pro forma net operating income and limited financing provide a unique buying opportunity for those investors with ready-to-deploy capital. This also comes with the uncertainty as to how and when the hospitality sector will bounce back. Regardless, the amount of dry powder globally and bullish investment strategies of family offices and pension funds keep hospitality in the crosshairs as an attractive asset class in the post-COVID environment.

Several hotel developments and acquisitions have taken place in Utah despite the pandemic. Portman Holdings has broken ground on the 26-story, 700-room Hyatt Regency Salt Lake City adjacent to the Salt Palace Convention Center. Just south of Salt Lake City, Radisson Hotel Group and Raddon Development have executed an agreement to build a 235-room, five-star Radisson Blu in Sandy, Utah. This hotel will be the first of its kind along the Wasatch Front, with elegant guest rooms, a rooftop bar and restaurant, and the largest conference space in the city. In Park City, a $2 billion ski development is underway as Extell Development navigates the complexities of...