Since the beginning of the novel coronavirus pandemic and the related crash in the hospitality and travel industries, many have speculated that we were about to witness investors rush to scoop up distressed properties. More than half a year into the unprecedented situation – and the majority of experts and pundits alike are yet to be surprised by such deals as they were few and far between. What happened? Weren’t the existent owners supposed to default on their bank loans due to unsustainably low occupancy levels and thus decrease their asking price greatly in the search of some opportunistic investors?
Turns out, this is not exactly what happened. Even if the owners were ready to devaluate their properties to highly attractive numbers – which they are still holding out for – buyers would think twice before signing the deal as their pockets would need to be deep enough to withstand many months of unsatisfactory asset performance and negative or minuscule cashflow.
That being said, should the hotel hunters turn their sight to the market that took the least time to recover and is by all means doing better than the rest of the world – namely, China? Perhaps, that is a solution for some, yet this option might not become the popular choice. The reason for such a surprising turn of events is China’s low internal rate of return on the hospitality assets. Whereas owners in the US and Europe might expect to start making money in five to seven years depending on the property and the market conditions, Chinese usually build with a very long timeframe in mind, accounting for the ever-expanding future demand, thus leaving the currently distressed environment oversupplied. This may further discourage brands and investors, who are unaccustomed to such a business model and have a shorter-term engagement in their minds, to put their faith in China.
Nevertheless, acquisitions still do happen, specifically with a trend on rebranding and conversion, which allows the big international players to expand their presence without releasing even more keys that the demand would just not be able to absorb. Such deals might become even more numerous as the present owners are stepping further into desperation and investors get some much-needed time to reevaluate the assets and be more secure about their choice. Who knows, perhaps, the right hotel is just around the corner!
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