Now is the Time to Invest in Hospitality
By Taylor Woods
During times of uncertainty, history has shown that investing in contrarian ideas can yield significant results. We launched Urban Commons in 2008, at the peak of the Financial Crisis, to capitalize on just that – acquiring deeply discounted hospitality real estate. With previous expertise investing in real estate, a willingness to go against conventional wisdom, and a high-conviction in the long-term fundamentals of the hospitality industry, we identified hotels situated in prime locations that were recently renovated and refurbished, but temporarily distressed due to the global economic downturn. We also strategically focused on full-service hotels with several demand generators, such as airports, tourist attractions, or convention centers – characteristics we knew would drive profitability as soon as the economy recovered.
Average price per key, as reported by RCA
While the average sales price per key bottomed out in the second half of 2009, data shows that pricing quickly reverted to pre-crisis levels two years following the crash. According to HVS, a global consulting firm focused exclusively on the hospitality industry, full-service hotels showed the greatest upside potential, with significant cap rate increases during the crisis followed by a rapid decline post-crisis.
Travel sector employment data from the Bureau of Labor Statistics, Skift
The strength of the hospitality sector is further demonstrated by how closely accommodation employment rebounded in line with the broader economy (All Nonfarm Employment).
While globalization may seem like a phrase from the past, it’s worth noting that trips increased 20% between 2010 and 2019 (US Travel and Tourism Overview) and its positive impact on the economy and the hospitality sector specifically is undeniable.
As the economy recovered, we continued to hold assets that we knew would continue to appreciate over time. While severely distressed opportunities became harder to find, we continued to employ our investment strategy, adding value where we had expertise. Sticking to our core beliefs has helped us generate returns of nearly 30% IRR over the long term.
Value per key, HVS projection model
We believe that now is the time to invest in hospitality again. HVS predicts that the valuation per room will bottom out this year and recover by 2025. In order to maximize the gain in this recovery, we need to expeditiously invest in attractive opportunities coming onto the market now. We at Urban Commons have the experience, team and network to continue to provide outsized returns to our investors. If you wish to learn more about why now is the ideal time to invest in hospitality, along with our current opportunities, we encourage you to get in touch at IRTeam@urban-commons.com.