Maturing debt and World Cup present prime buying opportunities for Atlanta hotel investors

Many debt-strapped hotel owners, who are also under pressure from their brands to invest more capital in maintenance, could be forced to sell this year and next, opening up a big opportunity to commercial real estate investors looking for opportunistic purchases.

Bisnow/Jarred Schenke

Rocky Horde of Burr & Forman, Matt Bronfman of Jamestown, Rahim Charania of Woodvale, The RADCO Cos.’ Lisa Hurd, Jeffrey Graham of the Graham Group and Travis Garland of Portman Holdings.

Nearly $6 billion in CMBS hotel loans are set to mature this year, most of which were made before the pandemic, when interest rates were less than half of what they are now. The pandemic’s dramatic impact on hotel performance has led lenders to extend many of these loans, but those days are coming to an end and refinancing will be difficult at such high rates.

Today, many of those owners are being forced to sell to get struggling hotels off their books – in favor of new investors, Rahim Charania, managing partner of Woodvale, told BisnowAtlanta’s State of the Market event last month.

Charania said his firm recently closed a $100 million fund to buy distressed and value-add real estate, and he plans to invest a good portion of that fund in hotels.

“Through our due diligence, what we discovered is that the low-hanging fruit is right now in the hospitality industry,” Charania said on stage at the Hyatt Regency Atlanta. “If you haven’t done your (property improvement plan) for a while, the franchise company is constantly yelling in your ear telling you to do your best. So yes, I think all of this could create an opportune time to buy hospitality.

Satori Collective co-founder Andy Chopra said the need to invest capital in renovating and refreshing hotels at the demand of brands like Marriott and Hilton was driving a point of inflection for the owners who have held on to this point.

“You have to make a tough decision,” Chopra said. “Is it an exercise in making money after a bad exercise? Would I be better off taking out all the equity I can today through a sale and redeploying it by capitalizing on another borrower’s pressure points?

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Debra Cannon of Georgia State University, Julienne Smith of IHG Hotels & Resorts, Pete Patel of Nexera Capital, Jay Patel of JMS Family Office, Andy Chopra of Satori Collective and Robert Fischel of Gensler.

Hotel investment is expected to increase this year, with 50% of investors expected to increase their hotel purchases in 2024, according to a CBRE report that surveyed more than 130 real estate investors. More than 70% of these investors said they were looking for value-add and opportunistic deals in the hospitality sector.

Capital, sitting on the sidelines as the commercial real estate world adjusts to higher, longer interest rates, expects a deluge of distressed properties to hit the market. walk. But Pete Patel, CEO of Nexera Capital, said that was unlikely to come to fruition.

Instead, opportunities will be selective and concentrated in certain markets, particularly in the Southeast, which has weathered economic headwinds better than other regions of the United States.

“The Southeast has been really strong. For most of our portfolio, the last two years have been the best years ever,” Patel said. “People think there should be a flood of distressed assets. Obviously, I don’t think it will be a flood, but there will certainly be opportunities.

Another factor that makes the hotel sector attractive is the lack of available debt, which will help reduce the number of new hotel deals coming to market, panelists said. Although there is some debt for existing assets that generate cash, banks have tightened the terms of construction loans and increased the amount they ask borrowers to pay.

“It’s really difficult on the development side,” said Julienne Smith, director of development for IHG Hotels & Resorts. “A large lender told me, ‘If I don’t have a relationship with you, don’t stop me after this panel, because I’m not going to form a new relationship.’ We only lend to those we know.

That doesn’t really show up in the numbers for metro Atlanta. Coming off a record year of new hotel development, with 151 projects totaling 18,730 new rooms, developers announced more new hotels in metro Atlanta in the final quarter of 2023 than any other market in the U.S., according to Lodging Econometrics, with 16 projects totaling more than 1,500 new hotel rooms. Phoenix followed with 15 new hotels and Dallas with 14, the report said.

Developers are opening new hotels not only in downtown Atlanta and near Hartsfield-Jackson Atlanta International Airport, but also around future manufacturing hubs, including the SK Battery America plant and the Rivian’s electric vehicle factory, HVS recently reported, although Rivian’s plans have been shelved.

But this new offer hurt the performance of Atlanta hotels, which were also penalized in the first quarter by inflation.

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Ryan Mills of CohnReznick, Greer Gallagher of Holder Construction Co. and Jerry Parrish of Atlanta Metro Chamber.

But many speakers at the event said Atlanta hotels will get a huge financial boost in two years, when the city hosts eight 2026 FIFA World Cup matches, including half final. The games are expected to attract 300,000 foreign visitors to the region and result in an economic impact of more than $400 million.

While Patel said his company is delaying previously planned hotel developments, it’s a different story for his company in Atlanta, where Nexera is developing a 183-room Moxy by Marriott hotel downtown.

“We are growing here in Atlanta. It made sense. We think the downtown market is really strong,” Patel said. “And obviously we have a major event coming up here in two years.”

Beyond hospitality, the World Cup Games could also have a long-term effect on Atlanta’s international reputation, similar to the 1996 Summer Olympics, said Jerry Parrish, an economist in chief at the Metropolitan Atlanta Chamber.

“Holding the Olympics here in 1996 literally put Atlanta on the international relocation map. It’s like no one ever heard of it before we had an Olympics here,” Parrish said. “We’ll see another bump like that.”