Boston’s attractiveness to hotel investors is expected to endure in the post-pandemic environment. The 1,051-room Omni Boston Hotel at the Seaport is scheduled to open Sept. 1 as the headquarters hotel for the Boston Convention and Exhibition Center. Image courtesy of Elkus Manfredi Architects

Due to the COVID-19 pandemic and the devastating effects it had on the hotel industry, owners spent much of last year triaging portfolios and working with lenders to manage cash burn. 

As we entered 2021, the promise of vaccines and additional government support resulted in a 180-degree shift in investor sentiment – pointing to what could be a phenomenal summer in 2021, particularly for drive-to leisure destinations such as Cape Cod and the Islands. Investor sentiment in urban Boston/Cambridge has also improved, however, investors remain cautiously optimistic as fundamentals also begin to improve.  

While timing for the recovery of business and group travel remains uncertain, there is tremendous conviction in the future of leisure travel. After being confined at home for the better part of a year, many are looking to break free and start to travel again. There is pent-up demand in the short-term fueled by flexible work schedules, increased savings and a “life is too short” mentality – the start of another “Roaring Twenties” era, if you will.   

Hotel reservations throughout the New England area reflect this sentiment as bookings for the next 30 to 60 days out are looking promising. 

No Wave of Hotel Distress 

During the pandemic, there was a significant amount of capital that was raised for distressed hotel deals. Due to government assistance, which provided owners much needed capital to navigate the challenging operating environment, there were virtually no properties available for sale. All that capital is still sitting on the sidelines, waiting to be invested and at more aggressive pricing levels.   

In addition to the reserved funds waiting for opportunities to invest, private equity firms, high-net-worth individuals and overseas investors remain bullish on the hotel market and are actively seeking opportunities here. The result is a vibrant seller’s market, particularly for Boston/Cambridge and well-known drive-to leisure destinations. 

Alan Suzuki

Inventory, however, remains low across all spectrums of New England’s hotel market. One reason for this is that many owners are concerned with selling in what they feel is the bottom of the market.   

In fact, now is the perfect time for resort and leisure properties to test the market with a partner who can sell the upside to the generous buyer pool. Market dynamics point to the conviction in the leisure sector, the amount of new capital waiting to be deployed, the lack of competition and the improved debt financing environment as positive reasons to explore sale options. 

Another incentive to put a toe in the water is the fact that certain resort properties are worth more today than pre-COVID. Resort properties were a favorable trend pre-pandemic given its demographic trends and supply dynamics. The outbreak has accelerated investment in the drive-to and resort markets segment as travelers seek the safest options available. As such, they are also expected to be the first sector to recover, making these assets more appealing to investors.  

Matthew Enright

Searching for Downturn-Proof Properties 

While uncertainty and cautiousness plagued the hotel investor interest in 2020, the New England lodging industry is poised to rebound strong. Investors responded to shifts in hotel demand and leisure traveler preferences by adjusting their investment strategies to acquire assets that fared better during the downturn. 

Investors worldwide have long considered Boston to be a top destination, and this is expected to continue as we recover from this pandemic. 

The pandemic will undoubtedly have long-term implications on the industry, over the short term, we can expect: 

• Private equity groups and high-net-worth individuals will continue to be active investors in hotel assets and all regions globally, including Boston, and are seeing a flurry of fundraising activity with opportunistic capital ready to mobilize. 
• The “manchise” structure – a management contract that can be converted to a franchise agreement – is on the rise as hotel parent brand companies evolve from traditional management structures. 
• Consumer preferences will drive hotel room redesigns and the acceleration of technology advancements. 
• Pressure to prioritize real estate investments grounded in environmental, social and governance principles takes precedence. 

Alan Suzuki is a managing director and Matthew Enright is a director of capital markets for JLL Boston.