Summary
- Number of new Mixed use projects (condo hotel / fractional / Villas) will come on the market soon which will add pressure on existing hotel properties.
- Residential frenzy fueled in part all of these mixed use projects.
- Appetite for Residential real estate has and will continue to decrease making hotel trading performance reach a plateau or even subsiding in some secondary / tertiary markets.
Analysis
Mostly thanks to a strong appetite for Residential real estate products across the country, mixed use development in the past 5 years has enabled the undertaking of large and costly Hotel projects which otherwise would have not gone beyond the conceptual phase. The “Mix” between strong hotel performances and residential buying frenzy has helped developers’ economics (in layman terms, which consist of pre-selling units even before building them and benefiting from an on going income generated by the unit sold and managed by a known hotel flag). Other contributing factors are, all around strong economic fundamentals, available discretionary amounts for secondary / tertiary residence…..and access to low cost financing.
However, residential market is hurting and has taken a serious hit in the sub prime loans. The latter would not normally affect the bracket of the population interested in buying a residence/condos, fractional/time-share or destination clubs, but it could divert some of their investment discretionary funds for something else (perceived to be more secure). That mere fact could trigger caution amongst lenders and developers. Though an expected slow down cannot be solely attributed to psyche (most of the Wall Street fluctuations are), or the sub prime mortgages, it is my opinion that it will likely affect in a bifurcated way, hotel trading performances and residential real estate demand in the short to mid term.
