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Hotels and Seniors Housing Are Positioned for Recovery

Even with still grim metrics, investors are more bullish on buying opportunities in the coming year.

Although hotels have seen a dramatic improvement from the extreme lows in the second quarter of 2020, they continue to be battered by the severe decline in business and leisure travel. According to recent STR Inc. data for January, U.S. hotels were averaging occupancies of 39.3 percent, while average daily rates (ADR) of $90.79 was down nearly 28 percent year over year and revenue per available room (RevPAR) was down 48 percent at an average of $35.72.

Yet even with those still grim metrics, investors are more bullish on buying opportunities in the coming year. Although more than half (54 percent) still think it is a better time to hold, 43 percent consider it a good time to buy hotels compared with 27 percent who held that view in the second-half 2020 survey. Those who believe it is a better time to sell are in the minority at 4 percent. Hotel investors are more optimistic that the sector has hit bottom. Nearly half (47 percent) expect values to rise in the coming year with an average gain of 4.3 percent.

The survey results likely represent the segmentation within the hotel market, notes Brian Hosey, vice president, national director of Marcus & Millichap’s Hospitality Division. “Hotel performance is very fragmented depending on location and service level,” he says. For example, properties in drivable vacation destinations and properties with suites and in-unit kitchens have fared better compared with urban hotels that cater to conventions and conferences. The positive buyer sentiment likely also reflects investors hoping for significantly discounted buying opportunities in the sector. However, big price cuts may be increasingly difficult to find now that vaccinations are gaining momentum, adds Hosey.

Seniors housing also has had to manage a variety of pandemic-driven headwinds that pushed occupancies to a record-low 81.2 percent in the fourth quarter of 2020, according to NIC MAP® data. There are, however, some big geographic disparities ranging from highs of 87.2 percent occupancy in San Jose to lows of 73.1 percent in Louisville. Within property subsegments, occupancies in assisted living averaged 80.3 percent in the fourth quarter and independent living occupancy averaged 83.3 percent. Since March 2020, assisted living and independent living occupancies have fallen by 740 and 630 basis points, respectively.

However, investors remain optimistic about the recovery outlook with 59 percent of respondents who predict that values will rise in the coming year by an average of 6.7 percent. Sixty percent of respondents think it is a good time to buy more, while 40 percent believe it is better to sell. People 65 and older and workers at senior care facilities are both in the highest priority group for receiving vaccinations, which should help speed the recovery of this industry, and the long-term demand drivers for the sector remain sound as baby boomers move into the age range that most often needs seniors housing, notes Todd Lindblom, vice president and national director of Marcus & Millichap’s Seniors Housing Division.