Watch onNEW YORK - Independent hotel operators and giant global chains are increasingly linking up in franchise agreements as high-interest rates have slammed the hospitality industry, slowing down new hotel construction.
"In a climate where the debt markets for new construction are somewhat constricted, the importance of conversions is elevated," Marriott’s CEO Anthony Capuano said on an earnings call earlier this year. "Access to hotel financing, especially in South America, is currently limited since many hotels faced difficulties in meeting their debts during the pandemic," said Fernanda L'Hopital, South America director of consulting and valuation at hospitality consulting firm HVS.
Those loans are likely to be refinanced at higher interest rates. In the U.S., interest rates for new branded hotels are between 6.75% to 8.25%, up from 5-6% before the pandemic, said Shivan Perera, senior vice president of debts and participations at real estate lender Avana Capital. Un-branded operators generally have slightly higher rates between 7% and 9%.
In Europe, real estate interest rates are trending at around 6% and 8%, up from 2.5% to 3% before the pandemic, said Tim Barbrook, head of debt advisory at HVS London. For branded hotels, rates are about 0.25% lower. Hilton's franchise and licensing fee revenue rose 14.6% year-over-year in 2023 and 38.5% in 2022, while Marriott's were up 13% in 2023 and 40% in 2022.
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