Economists are expecting tomorrow’s CPI report to show a 4.7% increase from a year earlier. Today saw the 10 year treasury yield drop to as low as 1.47%, possibly due to technical short covering in the markets. The big question is – will tomorrow’s big number rattle Treasuries into a sell-off? Or, will the number be tamer than anticipated? Last week’s weaker than expected jobs report calmed market inflation expectations. Tomorrow’s report may rekindle inflation fears.
Spotlight on Hospitality: During the depths of the pandemic shutdowns in 2020, the hotel industry was hit hard, many hotels were closed for business or operating at severely reduced capacity. The monthly occupancy rate plunged from 62% in February to a multi-decade low of 22% in April. Many market participants were anticipating a wave of distressed property acquisition opportunities in the sector stemming from lender foreclosures. The “wave of distress” did not occur. The pandemic shutdown was vastly different from the credit crisis and Great Recession that began in 2008. This time, vaccine distribution and the 2021 reopening of society was within sight. Most lenders allowed their borrowers to hold on through the crisis. Case in point: the largest distressed portfolio in the US, the Eagle Hospitality Trust included 15 hotels located across the country. The distress in the portfolio stemmed from ownership issues then exacerbated by the pandemic. The auction is going better than anticipated with 5 assets fetching prices in excess of the stalking horse bids and the remaining assets expected to be sold this month. According to STR, May 2021 US Hotel occupancy hit 61.8%. Memorial Day weekend occupancy was nearly 80%. CMBS Hotel loans in special servicing dropped to a pandemic era low of 20.1%, after hitting a high of 26% last summer. Last month’s jobs report indicated that Leisure and Hospitality led the net increases in jobs at 331,000 new hires (#2, Government was at 48,000). Business travel is showing signs of life and even pent up demand. This week, the first major convention post pandemic, the World of Concrete in Las Vegas is well attended. Corporate travel is starting up amongst companies looking to get an edge on their competitors still doing business remotely. Here at GSP we are seeing more capital sources now considering hotel loans albeit at lower proceeds and higher risk spreads, but it’s a start. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners