Delving into inflation, interest rates, recession and more with Korosh Farazad.
As a hotel Investor, I see any opportunity within the sector to be positive (for the right price). We have first-hand witnessed during this holiday season how travellers already exceeded in terms of volume pre-COVID numbers ten-folds.
“I do believe the interest rates and inflation will cause prices to potentially go further down by 5-10% from guide price; however, I do not see a nosedive as we have seen in the crypto market or other forms of digital platforms.”
People will not stop travelling post 2-years of travel restrictions and this in reality is only going to increase considering everyone has been trapped indoors for this period. I do believe the interest rates and inflation will cause prices to potentially go further down by 5-10% from guide price; however, I do not see a nosedive as we have seen in the crypto market or other forms of digital platforms. Brick and mortar always win. We regularly see nosedives within the crypto market and that can happen for a number of reasons; but the main reason is because of a change in sentiment… Just like when something becomes fashionable, it can also become unfashionable in a moment’s notice and in turn it can drive down the value of said product. This is why something like the crypto markets which are typically sentiment driven investments are so dangerous to investors as they are incredibly unstable and difficult to predict in the day-to-day.
Should investors act now?
At present, the higher interest rates are balancing supply and demand. This is because with high interest, less people are borrowing and, in turn, less people are buying which gives supply numbers the time to increase and demand to decrease; therefore, if an asset is acquired today for the right value, it would provide a future surplus value provided the appropriate structuring is taken into place to balance current inflation and higher interest rates. The current global economic shocks are with us for next 18-24-months as it takes time for these things to turnover and develop. Therefore, I personally do not see a reason why good opportunities should not be considered and acquired for the right value as nothing will change for at least that period of time. Sellers also need to be somewhat pragmatic with their guide price if they are forced to sell. Otherwise, investors are well educated to see the value for money in acquiring the asset and the value at a 5-year exit which isn’t good for themselves.
“Sooner or later, inflation will decrease and that will result in the investment markets to start becoming more competitive again.”
For example, approximately 6 months ago we were looking at a hotel investment for a guide price of £160 million and now the exact same asset has been reduced to £145 million pounds. We were at that time, ready to pay that money, now buying it at £15 million discount gives us, equity investors, higher value-add in the long run under the basis of a lower purchase price. This proves that now is a fantastic time to buy because you can get much more for your money for doing the same amount of work. Sooner or later, inflation will decrease and that will result in the investment markets to start becoming more competitive again.