LaSalle CEO Expects Hotel Deals to Slow in 2016

Michael Barnello

Michael Barnello, president and CEO of LaSalle Hotel Properties (NYSE: LHO), joined REIT.com for a CEO Spotlight video interview at REITWorld 2015: NAREIT’s Annual Convention for All Things REIT at the Wynn Las Vegas.

LaSalle focuses on upscale, full-service hotels, in 14 markets across 10 states and the District of Columbia. Barnello gave an overview of fundamentals in the upscale sector of the hotel market.

He observed that supply-and-demand trends have been favorable for LaSalle and the industry for the last five-plus years. Looking forward, however, there are some question marks, according to Barnello. He observed that supply has increased year-over-year since the recovery started. Demand, while still positive from a long-term historical basis, has been decelerating for the past four quarters.

“From a fundamental standpoint, we still feel good about 2016, but we’re just concerned that it might not be as strong as 2015,” Barnello said.

Barnello also said he expects to see a slowdown in hotel transactions in 2016. Following an active first half of 2015, transactions slowed in the second half of the year as lower REIT share prices put upward pressure on the cost of capital.

Barnello observed that many potential sellers are unlikely to take a lower price for their assets just because the cost of capital has come down.

“From their perspective, the assets are still strong. If anything, earnings before interest, taxes, depreciation and amortization (EBITDA) are likely to have increased,” he said.

“I think there’ll be a disconnect in pricing between what hotel REITs can offer and what sellers will look for, so I think there will be a slowdown in transactions in 2016,” Barnello noted.

Meanwhile, Barnello said he expects to see a lasting impact from companies such as Airbnb, Inc. He pointed out that the market penetration and comfort level with travelers for Airbnb and similar companies saw a marked pick-up in 2015. Barnello expressed concern that companies like Airbnb do not operate on a level playing field with the hotel industry in areas including health and safety requirements, taxation, licensing and permitting.

“To the extent that those things are enforced, then I think we’ll find a way to coexist,” Barnello said.