Understanding the Hospitality Sector with Desi Co of Accord Group

FEBRUARY 2024

In January, Accord Group Holdings, a global real estate strategic investment and capital advisory firm, announced it had made a capital commitment to Noble Hospitality Fund VZ (NHF V) and that it had acted as a capital adviser for the fund, helping it hit its hard cap of $1 billion earlier in the month.

Managed by Noble Investment Group, NHF V is investing in value-add opportunities in select-service and extended-stay hotels across the United States.

In an interview with IREI, Desi Co, managing partner at Accord, explained in greater detail what he and Accord find enticing about the hospitality sector in today’s market environment.

“One, it tends to run at very high operating margins, typically much higher than full-service hotels,” Co said. Those lower margins are due to a number of reasons, including lower labor needs which enable it to offer nightly rates just below higher-end hotels.”

Secularly, another factor contributing to the favorable outlook for select-service and extended-stay assets is the expansion of remote and hybrid work in recent years that is enabling people to travel to their holiday locations a day earlier.

“That’s a real thing in the industry, that extra day,” said Co. “It’s a huge added source of demand.”

Cyclically, hotels traditionally can act as a protection against inflationary conditions as they are essentially offering daily leases that can respond to inflation trends.

NHF V is also deploying its capital in a fascinating economic moment for the hotel sector, observed Co. “There’s a perfect storm brewing,” he said, “where if you got a loan, gosh, about five years ago and now it’s coming up for maturity, you are looking at values that are down on everything ... So as those loans come to mature, you have a refinancing gap that has to be sorted out.”

But hotels aren’t only dealing with refinancing difficulties in a high interest rate environment. The sector also had a unique two years of business (or rather, lack of business) during the heights of the COVID pandemic. A significant portion of PIP (Property Improvement Plan) money, money that hotel owners hold aside to invest in upkeep and to hold in reserve, was used to keep hotels afloat during that time.

“Those reserves are wiped out,” said Co. “But now those reserves are also coming home to roost, in addition to a refinancing impending.”

A lot of select-service and extended-stay hotels are also owned by moms and pops who may not “necessarily have the capitalization and/or the energy to keep it going,” said Co, “and so they might be more inclined to sell in this particular moment than otherwise.”

Altogether, the time seems opportune to acquire these hospitality assets, when the fundamentals are strengthening yet refinancing capital is expensive.

“So it’s an interesting time and we think this fund with a billion dollars of capital,” Co concluded. “… They’re extremely well positioned to take advantage of this moment.”

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ABOUT ACCORD CAPITAL PARTNERS LLC

Accord, through its affiliates, is a global capital advisor, principal investor and investment manager. With its headquarters in San Francisco and personnel in Chicago, London, Hong Kong and Seoul, Accord engages with a wide variety of participants in the real estate private equity industry. Accord Capital Partners, its broker/dealer affiliate, provides advisory and capital raising services in the United States. Accord Europe Limited, its broker/dealer affiliate, provides advisory and capital raising services in the United Kingdom and Europe. For further information on Accord, visit: www.accord-group.net.