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Together with
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Good morning. Hilton and Marriott are introducing extended-stay brands to cater to evolving travel and work habits, targeting guests staying 20+ nights. Meanwhile, New York City’s largest office building owner is under review for a potential credit downgrade
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Today’s edition is sponsored by CrowdStreet. Invest directly in real estate projects from some of the nation’s top project sponsors and developers.
Market Snapshot
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*Data as of 5/23/2023 market close.
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BRAND EXTENSION
Hilton and Marriott Set to Launch New Extended Stay Hotel Models
A rendering of Hilton’s new extended-stay hotel brand. PHOTO: HILTON
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In an effort to accommodate guests who prefer longer booking periods, Hilton (HLT) and Marriott International (MAR), two of the largest hotel companies in the United States, have announced their plans to introduce new extended-stay brands.
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Stay for a while: Hilton and Marriott are gearing up to launch new hotels in their soon-to-be-revealed brands next year. They’re eyeing a common audience: budget-conscious travelers looking for extended stays of 20 nights or longer. This friendly rivalry underscores their mutual commitment to serving the needs of long-term guests.
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Affordably priced: Hilton is already in talks with 100+ hotel owners to introduce extended-stay rooms with kitchen facilities, gyms, and more. Meanwhile, Marriott plans to launch suburban extended-stay hotels with 124 rooms in 54,000 sq ft, targeting areas outside large metropolitan areas with lower construction costs and limited temporary lodging options.
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Watch out, Airbnb: Extended-stay accommodations helped the hospitality industry recover during the pandemic and continue to remain a popular choice among many who work and travel for extended periods. The demand for rooms that provide additional space and comfort has increased, and a recent STR report revealed an occupancy rate of 74.7% for extended-stay properties in 2022 as opposed to 62.6% for overall hotel occupancy nationwide. In other words, perhaps Airbnb (ABNB) has finally got some competition.
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Remote work = flexible accommodations: The flexibility of extended stay rooms is seen as a boon for changing work and business travel habits. Unsurprisingly, Hilton and Marriott aren’t the only players in the hotel industry to launch extended-stay brands. Hyatt (H) is set to launch 100 hotels under its new brand Hyatt Studios, while Blackstone (BX) and Starwood Capital (STWD) already own and operate several extended-stay brands, including WoodSpring Suites.
➥ THE TAKEAWAY
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The new sweet spot for hotels: The launch of Hilton and Marriott’s extended-stay brands is an early sign that this new model may quickly become the norm. Affordable, flexible accommodation isn’t just appealing to businesses and traveling employees but also to anyone traveling alone or with friends and family. This includes anyone requiring hotel accommodation for a few weeks to adjust to a work relocation. Building extended-stay brands is a no-brainer for hotel companies looking to capture a share of this lucrative market.
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TOGETHER WITH CROWDSTREET
Maximize Returns with Exclusive CRE Investments
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Do you wish there was an easier way to build a real estate portfolio without being a landlord? Enter CrowdStreet.
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Their easy-to-use platform allows anyone to invest in large-scale real estate projects with other investors without having to foot the entire bill.
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View a deal’s financial documents, register for a live webinar with the project developer, submit an investment offer, and more–all from your own home.
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🌐 Around the Web
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📖 Read this op-ed from Robert Knakal on NYC’s ‘greatly underused asset’ that could help fix its public housing and solve the affordable housing problem.
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🖥️ Watch how the LA office vacancy rate spiked to 22.5% in Q1 amid ongoing CRE market struggles and what it means for everyone involved.
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🎧 Listen to Levi Benkert, the founder & CEO of Harbor Capital, talk about how he built up a Class B ‘industrial empire’ in Texas on this episode of The Fort with Chris Powers.
TROUBLE IN PARADISE
SL Green Facing Credit Downgrade From Moody’s
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New York City’s largest office owner, SL Green, is facing potential challenges as credit rating agencies closely examine its debt and geographic concentration.
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What happened: Moody’s Investors Service is considering a credit downgrade for SL Green’s corporate family debt, which could result in higher costs for the company in issuing bonds. While SL Green currently holds a Ba1 rating reflecting its asset quality, its leverage ratio of 15.2x is considered “very high” for companies in the Ba1 rating category, as noted by Moody’s.
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What led to the review: SL Green’s financial situation is influenced by multiple factors. Firstly, the company is under pressure due to its $2 billion acquisition of 245 Park Ave., which it obtained through bankruptcy proceedings from HNA Group in 2021. SL Green’s concentration of assets in New York City also contributes to its perceived riskiness. Additionally, Moody’s highlights that most of SL Green’s 33 MSF office portfolio is located in New York City as a significant factor in their evaluation.
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Market challenges: SL Green’s financial performance in Q1 reflected the challenges in the office market. Their 23.8 MSF portfolio occupancy decreased to 90.2% from 93% the previous year. They reported a $39.7 million loss, with operating revenues down by $2 million and operating expenses up by nearly $5 million compared to the previous quarter. The office market in New York City remains sluggish, with occupancy rates below 50% and a 44% decrease in office deals in April compared to the previous year.
➥ THE TAKEAWAY
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Zoom out: SL Green’s CEO, Marc Holliday, maintains optimism despite market challenges, seeing positive signs for a gradual recovery in the commercial real estate sector. He emphasizes the appeal of a skilled and diverse workforce, which could attract employers. To address liquidity concerns, SL Green is considering asset sales, including its stake in 245 Park. Moody’s evaluation of SL Green’s credit review hinges on their ability to effectively navigate a difficult market by selling assets. Moody’s notes that SL Green’s debt coverage ratio dropped to 1.7x, below its usual average of above 2.0x for the 12 months ending in March.
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📰 Daily Picks
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Office REIT slump: Share prices of top office landlords, such as Vornado (VNO) and SL Green (SLG), have fallen over 30% this year as the return-to-office rate remains sluggish.
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Renter’s utopia: What can we learn from Vienna about effective and affordable public housing? A lot, apparently. Find out why some have called Vienna a ‘renter’s utopia.’
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HELIX hub: A 4-acre innovation district in downtown New Brunswick, NJ, is moving on to its $731M 2nd phase, which will include 600 KSF of lab and office space.
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Watch out, y’all: JP Morgan (JPM) warns that CRE could cause more problems for lenders, despite historically low loan defaults. Jamie Dimon expects 6–7% rates are incoming.
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Refi woes: A new study reveals that 84% of the $7.8B worth of fixed-rate CMBS office loans that mature this year will face refi challenges. Office values could drop by as much as 25%.
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Race to refurbish: London’s office market experienced record refurbishments across 3.2 MSF as owners prepare for a required energy performance rating by 2030 due to incoming regulations.
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Looking worse by the minute: Traditional indoor malls are still losing tenants, with iconic retailers offloading their locations in aging indoor properties nationwide.
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Follow-on: Private equity groups are selling shares of portfolio companies at a discount, indicating skepticism about the stock market’s return to previous highs.
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Remote work: The sluggish return to office occupancy at around 50% suggests a bleaker outlook for New York’s office values due to the long-term impact of remote work.
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Going digital: Despite AI and machine learning advancements, digitizing the real estate paper trail is challenging. Humans are for now still essential.
📈 Chart of the Day
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Ongoing uncertainty and high borrowing costs are postponing deals and driving a deeper wedge between buyers and sellers of CRE properties worth up to $15M.
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