Despite the current economic climate and rising interest rates, owners and developers are optimistic about 2024, citing acquisitions and growth. Hotel Business spoke with Greg Friedman, CEO, Peachtree Group; Kerry Ranson, president, operations/partner, Raines; and John W. Rutledge, founder/chairman/CEO, Oxford Capital Group/Oxford Hotels & Resorts, for their insight.
—Abby Elyssa
How did you perform in 2023? Did it meet your expectations?
Friedman: The credit landscape has become increasingly challenging. The failure of some major banks has caused other lenders to reassess their lending portfolios. As a result, credit standards from banks have tightened, requiring higher debt coverage ratios, more equity in deals and higher borrowing costs. Due to this constrained credit access from traditional channels, the commercial real estate sector is experiencing a growing dependence on private credit. As such, Peachtree Group’s credit team is reaping significant benefits from the $1.9 trillion of loans maturing between now and 2026. Also, our development team has a $1 billion pipeline with new hotel openings and groundbreakings throughout the year.
Ranson: The portfolio’s revenue in 2023 has exceeded our expectations, with a strong start to the year, a balanced second quarter, some settling in the third quarter and a strong finish in the fourth quarter. Our occupancy rate for the entire portfolio met budget at 67%, with a $2 increase in ADR. Compared to last year, occupancy was down 2%, but ADR was up $5.56. We faced challenges with rising expenses for goods and labor, but our control over scheduling helped us maintain profitability compared to the budget.
Rutledge: Oxford’s management and asset management teams outperformed our 2023 expectations/projections from both a RevPAR index and NOI margin perspective, while the overall market and submarkets we operate in continued to recover from COVID at various levels.
Greg Friedman Peachtree Group
Are you looking to purchase more properties in 2024?
Friedman: I expect the credit side of Peachtree Group to remain strong due to impending maturities, with other investment opportunities, primarily acquisitions, following as the market reprices at levels that reflect current economic conditions. Peachtree Group’s acquisition activity was muted in 2023 as bid/ask spreads remained wide. However, Peachtree Group did acquire five hotels during the year.
Ranson: In 2024, we are actively looking to expand our property portfolio, though the current environment presents challenges. Despite this, we are working to find innovative solutions and strategies to overcome these obstacles to get projects done. We understand that our traditional approach may need to adapt to achieve our goals successfully. Discovering new development opportunities will always be crucial to our organization’s growth strategy. However, our current focus is maximizing existing assets that generate revenue and can be repositioned. Our primary objective is to uncover off-market opportunities where our management expertise can enhance the value of the acquisition.
Rutledge: We are always looking to acquire properties, both existing hotels and development/redevelopment projects, as long as we feel confident we can generate opportunistic returns under conservative underwriting projections. We are also looking to continue to grow our existing third-party management platform, where we consistently outpenetrate from an index perspective and outperform from a profitability, margin and guest service score perspective.
John W. Rutledge Oxford Capital Group/Oxford Hotels & Resorts
What are you forecasting for 2024?
Friedman: We expect more opportunities in 2024 as funding gaps from ownership groups facing debt maturities will likely create distress for those unable or unwilling to invest additional equity, potentially leading to the owners having to transact through a sale. It is evident that this market for the foreseeable future presents an ideal opportunity to pivot investment strategies across debt and equity investments, a competency Peachtree possesses and has executed countless time.
Ranson: Our portfolio is forecasting consistent growth opportunities for 2024. We anticipate a modest increase of 0-1% in occupancy across most locations, while rates are expected to rise by 2%-4%. Our primary focus is driving rate growth. We see opportunity, particularly during high-demand months and among our group and corporate clients. Hotels will continue to navigate increasing expenses and rising labor costs amid a potentially slower year for travel due to the upcoming election. However, we see an opportunity to maximize high-demand periods and take advantage of limited supply growth in our markets as interest rates climb.
Rutledge: On a macro level, we are forecasting the overall national hotel market to continue to recover from COVID, but we are acutely focused on the different trajectories in each of the various markets taking into account the multiple variables impacting performance in each market and submarket differently. The challenges will continue to be the higher interest rate environment and rising operating costs. While operational performance has dramatically improved, there are a lot of upside-down capital structures that we expect to take advantage of over the next 36 months.
