We always want what we can't have: Investors may salivate over how ski resorts have performed over the span of the pandemic, but owners have little incentive to sell their durable assets.
Opportunistic investors amassed millions, if not billions, of dollars in “dry powder” capital since the Great Recession to deploy on investment opportunities during the next economic downturn.
The coronavirus pandemic presented that long-awaited downturn, and the hotel industry is poised to be the source of many distressed sales — except, perhaps, in ski resort markets.
“Given all the bells and whistles these resorts offer in terms of drive-to [travel] and being able to sustain their performance in a pretty meaningful way, I don’t know what would incentivize an owner to sell because they’re not in a position where it’s that bad,” said Julie Purnell, managing director with CBRE Hotels Advisory.
Colorado ski resorts had a better October in the middle of a global pandemic than they did in 2019, largely due to domestic travelers favoring outdoor-focused resorts and drive-to markets. Leaders at companies like Four Seasons and Marriott point to properties in mountain resorts as some of their best-performing assets during the year so far.
Executives with Four Seasons and Accor indicated desires to expand further into ski markets during separate interviews with Skift over the course of the pandemic. These expansion plans make financial sense.
Business was down about 65 percent globally at Marriott in recent months compared to last year. But revenue per available room — the hotel industry’s key performance metric — is only down about 10 percent from 2019 levels in ski resort towns, according to CBRE data. That relative strength doesn’t give owners and operators much incentive to sell.
“Granted, it’s not every single hotel in those towns,” Purnell said. “But most operators and owners would be doing cartwheels with those kind of performance levels.”
The investment community is zeroing in on hotels in strong locations that are struggling to stay open or ones that have yet to reopen from suspending operations earlier this year due to the pandemic. Those hotel owners are the ones likely to be struggling to make mortgage payments and looking for a way out with a distressed sale.
Real estate investment firm Highgate became one of the largest U.S. hotel owners earlier this year with a $2.8 billion deal for Colony Capital’s hotel assets.
But deals like that have analysts expecting more of a feeding frenzy on bigger hotels in major urban markets rather than ski resorts and hotels in leisure destinations, which have remained a bright spot for the industry.
“Those hotels that are located in markets dependent on travelers that aren’t traveling yet — you’ll see [sales transact] more there,” Purnell said. “I think you’ll find more disruption in those markets as opposed to a drive-to, resort market.”
A Seller’s Market
Ski resort owners may have little incentive to sell assets, but that doesn’t mean hotel investors are going to stop looking. Leisure travel is expected to dominate the hotel industry’s recovery while corporate travel appetite remains uncertain.
“Investor appetite for drive-to resort destinations has increased since the onset of the pandemic,” said Scott Hall, a senior managing director with JLL’s hotels and hospitality group. “Mountain resort destinations, in addition to other drive-to resort markets, are widely anticipated to re-stabilize faster than urban markets, which are much more dependent upon corporate travel for recovery. Given this heightened investor appetite, we anticipate an increase in transaction activity in mountain resort destinations.”
Vail Resorts’ 2019 acquisition of Peak Resorts and its 17 properties in the eastern U.S. was a major transaction in this sector, and it would be logical to think there could be more deals like it or a wave of construction from individual hotel companies wanting to expand their footprint in the ski sector.
Sorenson indicated during a third quarter investor call that Marriott leaders were in discussions with development partners about building new inventory in ski markets as well as warm weather destinations following strong-performing months there with the company’s Homes & Villas short-term home rental brand.
But analysts caution investors to remember growth doesn’t come fast in high barrier to entry markets like ritzy leisure destinations.
“Let’s face it: To grow, especially in markets that have restrictive growth measures in place, it takes many years to build new, whether you’re talking Lake Tahoe or Aspen or even Napa,” Purnell said. “The permitting, zoning, and construction process can take years, if not a decade.”
Awaiting a Feeding Frenzy
There are plenty of blinking red lights signaling the hotel industry is destined for a wave of pandemic-induced sales. Hotels are the biggest source of delinquent loans for commercial mortgage-backed securities, a group of mortgages pooled as one that hotel developers often utilize to build new projects.
The U.S. hotel industry is also on track to surpass 1 billion rooms that went unsold for the duration of 2020, Bloomberg reported Friday. That compares to about 650 million in 2019.
But there still hasn’t been the wave of loan defaults many analysts have expected for months. Instead, many owners are working out flexible terms and forbearance arrangements with lenders to at least survive another couple of months. Another round of federal economic relief could also buy owners more time to work out a survival strategy.
There is still a general sense investors are jockeying to scoop up struggling hotels.
“The fat lady hasn’t really sung yet,” said LW Hospitality Advisors CEO Daniel Lesser.
But Lesser isn’t necessarily convinced it is going to be a different investor tune in ski markets compared to other parts of the U.S.
Ski resorts have their own set of problems to worry about in the pandemic. These properties still have to abide by social distancing guidelines and capacity restrictions on ski slopes and in the food and beverage outlets catering to the cash cow enterprise of “après ski” activities.
“They’re definitely holding up on a relative basis to drive-to markets, but I don’t know if you can drill it down to specific ski markets,” Lesser added. “I don’t think there’s anything that sort of separates ski markets from other leisure destinations in terms of making them less risky and more desirable from an investment perspective.”
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Photo credit: Ski resort markets are outperforming the general hotel industry during the worst year on record for travel. AspenSkiingCompany / Wikimedia