Even with the banking crisis, hoteliers are still very confident

In the same week, Silicon Valley Bank and Signature Bank went out of business, but the First Republic stayed open. Most commercial real estate loans in the U.S. come from small, midsize, and regional banks, and any trouble with them, like a run, can be very bad for both builders and buyers. Smaller banks give out about 80% of all loans for commercial real estate.

"Banking is a matter of trust, and when people take money out, it makes things worse," said Justin Knight, CEO and director of Apple Hospitality REIT, which owns hotels from select-service to upscale and is traded on the stock market.

"Local banks are the lifeblood of commercial real estate," said Blackstone's senior managing director of real estate, Scott Trebilco. "It will affect liquidity and the amount of activity, and it will take time to digest," Trebilco said that Blackstone hasn't used the debt markets in nine months. He added, "It's not fun to do nothing for nine months." One of Blackstone's last big deals in the hospitality industry was the $6 billion purchase of Extended Stay America by Starwood Capital in 2021. "We leaned towards extended stay as a type of housing alternative," he said.

Even though there are problems, hotel executives are still optimistic and even bullish about the state of the hospitality industry, especially from a business standpoint. Knight said, "So far, we haven't seen any effect on our business." " The basics are still good, but there's a lot of macro-noise. Even though inflation and rising interest rates used to put a stop to it, leisure demand is still strong. However, things outside of our business do make it harder for us to do business. Since interest rates have gone up, it's harder to find cheap debt, and the cost of capital has gone up, but debt is still available for good deals with strong sponsors.

"Debt isn't a reason not to do a deal," said Trebilco, but "deals are getting harder," said Knight.

Jonathan Stanner, the CEO of Summit Hotel Properties, which is also a REIT, is still not sure how all this bank trouble will turn out. He did say, however, that this is not 2008 or the global financial crisis. He said, "What we don't have are problems with the quality of the credit." "There's a lack of trust right now."

In fact, Teague Hunter, president and CEO of Hunter Hotel Advisors, said that we are no longer in the carefree days of auto appraisals and loan-to-value ratios of 80% or more. The LTVs are now more like 65%. He said, "The banks should be in a better place."

Marcel Verbaas, chairman and CEO of Xenia Hotels & Resorts, a REIT that mostly owns resorts and high-end properties, feels the same way. "We are definitely in a better place than in 2008 and 2009, and our balance sheets are stronger," he said, adding that refinancings that are coming due could cause some trouble. In fact, Verbaas said, "We see it as a chance because it means there will be more products on the market."

With the cost of capital going up and stock prices going down because of a shaky stock market, many public companies are buying back their own shares or putting money back into their properties. Many private companies that rely more on borrowing money have stepped up to fill the gap.

As the capital markets sort themselves out, it doesn't look like the hotel business is getting worse. Stanner said that booking windows are still getting shorter, but there is a huge rise in business during the week.

Stanner's point was echoed by Xenia's Verbaas, who said that midweek occupancy is getting stronger. "We're in a good place, really," he said. "It was the worst thing that ever happened to us."