The chat in the hotel sector is all about pent-up demand from guests desperate not to have to change their own sheets, but there is demand out there which has been gathering steam for much longer: from pent-up investors.
This week sees the deadline for bids for JJW, an estate for which an awful lot of potential owners and lenders have been unable to work up any great appetite for over the past few years. Yet now more than 50 different parties are clamouring for a bit of it.
There is a lot of fear coming out here in the wall of money, which is now way beyond the scope of any wall you or I can relate to and is more like the wall Donald Trump dreamed of, but fully paid up and armed with lasers and sharks. This cash MUST be deployed or, well, bad things will happen. It will go far away and not end up in people’s bonus pots is the key bad thing, but that’s bad news for the trickle down of hand-stitched loafers and cashmere hoodies.
So it’s bad. But things in the wider world have not got bad enough for the cash to be deployed, which takes us back to JJW and the few other portfolios out there giving people something for their photocopiers to do.
On the webinar we produced this week for Watson, Farley & Williams, there was general concern expressed that sellers and buyers were not seeing eye to eye, in the main because the one party thought the other should be suffering more than it was. Government support and access to cash were the two main reasons why there hasn’t been sufficient blood split for many investors’ taste and both of those are likely to wane with time, hopefully exposing some bargains.
But what then? The panellists suspected that bringing your asset to market when it was one of many might not work out – why not get a jump on the rush? It seems to be working out for JJW.
Amidst the jump or be pushed was the suspicion that investors were at risk of overpaying. A classic investor concern, but how realistic? It is hoped that hotel real estate will be one of the quickest groups to recover (no matter how slow the vaccine rollout it’s not looking too shiny for offices) and plenty of people are willing to ignore 2020 in favour of that quick hit.
But not all recoveries are equal. At JJW, a focus on Paris may not work when business travel is expected to come back last, with the first long-haul demands expected to come from families catching up, not travelling business people. We speculated earlier this week as to whether we were looking at a new segment – fabusiness – but we suspect not.
So are we at risk of overpaying? Can you put a price on being able to paint a room whatever colour you like? What we may see as a consequence of this are longer hold times. PE groups were gathering hoping to pick up bargains, but, as yet, there are none to be had. The time taken for hotels to come back up to 2019 performance – if 2019 is your bag – may be outside their scope, particularly if it’s all that cheap old leisure. Will the pandemic hail an era of slow investment in the hotel sector as PE falls back?