Hospitality market disconnect between fundamentals

There’s a big disconnect between hospitality fundamentals, which are exceptionally strong for many assets, while the debt markets have been deteriorating meaningfully. In the current environment, inflation and the Federal Reserve’s response have taken center stage, despite the strong fundamentals.

The credit markets fear that aggressive monetary tightening by the Fed could tip the economy into a recession, which has resulted in higher credit spreads and all-in loan coupons. JLL has observed balance sheet lending spreads generally increasing by 25–75bps, and SASB CMBS whole loan spreads widening by 150bps+. Additionally, the floating rate index SOFR, which tracks the Federal Funds Rate, has increased almost 150bps since January, with the expectation that the index could increase another 200–250bps by the end of the year if Fed monetary tightening continues.

As a result, all-in loan coupons are approximately 175bps to 300bps+ higher today, depending on lender typ