Elite CBRE Hotel Team Shares Market Insights
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They've only been with CBRE Hotels for five weeks, but Michael Yu and Rahul Bijlani's hotel investment sales team has already listed $200M in deals. That's a blistering pace even for Rahul and Michael (here, with Houston specialist Eric Guerrero on the left), whose team of 13 members—including nine producers—was already one of the country's most prolific hotel teams. In the last four years, they've closed 108 deals across the southern and southwestern US, generating $406M in sales volume. Now, Rahul, Michael and Eric are leveraging the expertise of CBRE's national presence to capitalize on Houston's market.
The big story is increase in supply. In the last five years, demand grew 8% while supply grew by a little over 1%. CBRE Hotels’ Americas research forecasts that supply will increase by 8.2% over the next five years, while demand will only increase by 4%. New construction will be difficult to finance, as is the case for most asset classes in Houston. Michael says there’s a momentary negative perception of Houston that’s unfounded. Recently, investors have been favoring Dallas, but Michael is quick to point out that while Dallas is improving, revenue per available room is still well below Houston.
Rahul stressed that you can’t look at Houston as just an oil city; you have to see it as the fourth-largest city in America, on track to be the third. With major medical centers, many successful professional sports teams and sustained population growth, Houston remains strong. Rahul points out that flights into Houston, which serve as an accurate proxy for hotels, haven’t seen a drop-off. Houston hotels (like the Holiday Inn Downtown, pictured) are closely tied to business travel, which typically doesn’t suffer from the same downturns as leisure travel.
This view was corroborated by CBRE Hotels VP Drew Noecker, who added that according to CBRE’s research, Houston's RevPAR grew an incredible 49% from 2011 to 2014. Even with the RevPAR declines in the past year, which correlate with energy pricing volatility, Houston has still been a market of decided growth.
The Houston lodging industry also started the recent oil price decline with record-high occupancies. Houston reached 72% occupancy in 2014, 10 points above its long-term average, according to CBRE Hotels managing director Randy McCaslin, who is pictured above with his adorable granddaughters. While the reduction in oil prices and the increase in supply will cause occupancies to decline through 2017, Randy expects the market to stabilize in 2018 and surge back to 67% by 2020, still five points above the long-term average.
CBRE Hotels Debt & Structured Finance SVP Marc Sallette added that interest rates remain at historically low levels, lenders remain interested in financing hospitality assets in Houston, albeit with more careful underwriting of the real estate, ownership, brand and management. Local and regional lenders that understand the dynamics of the Houston economy can be better equipped to execute on a financing than national players who are averse to Houston’s headline risk.