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DFW Hotel Industry Cautiously Optimistic for 2023

Real Estate

Hotel Drover in Fort Worth | Image by Marriott

Dallas hotels are expected to round out 2022 with an average revenue per available room (RevPAR) of $78.13, according to an estimate from CBRE and Kalibri Labs. They also predict that Fort Worth will see a RevPAR of $74.22 for the entire year.

The predictions are noteworthy because, if accurate, this means that hotel revenue in the DFW metropolitan area will reach 99% of pre-pandemic levels this year. Fort Worth, in particular, is expected to surpass 2019 levels by over 107%.

According to Kevin M. Donahue, vice president at CBRE and member of the Hospitality and Gaming Group, leisure demand in Fort Worth and corporate and small group demand in Dallas have “returned a little bit” faster than expected.

While the positive news is welcoming, not everyone is certain the resurgence can persist. Costly construction materials and rising borrowing costs could slow the market, despite DFW enjoying the highest number of pending hotels of any metro area in the country.

CEO and managing partner of Dallas-based real estate and alternative investment firm NewcrestImage, Mehul Patel, thinks the local market will be suppressed in the coming years.

“Very limited supply is being built because no lender wants to loan money on hotels. … It is more likely the new supply will come in 36 to 60 months. You won’t see anything for the next 24 months,” said Patel.

NewcrestImage has paused all of its half-dozen Dallas-Fort Worth hotel plans, citing construction costs. While Patel intends to pick back up in Q2 2023, nothing is guaranteed, he stressed.

“We are in an environment of uncertainty, so you have to adapt to reality… We live 30 days at a time; we don’t look further than 30 days,” he said.

While several hotels are still planned for construction in the city, not all deals will necessarily proceed as planned, especially nascent projects.

“If they’re still pretty early on and they haven’t secured financing yet, they’re most likely going to be put on hold,” said Donahue.

While the current environment is worrisome for some developers, others view it as an opportunity to accumulate more assets.

According to Patel, many institutional hotel owners are selling lower-valued properties, allowing companies like NewcrestImage to snatch them up at discounts.

“Every time there is a slowdown, we go aggressive, that is our strategy. … This is the right time for us to shop,” said Patel.

In terms of significant deals, across the country, 119 hotels valued at over $10 million were sold during the third quarter of the year, roughly $212,000 per room sold room, on average.

While the volume of transactions increased from 2021, the per-room sale prices actually decreased.

NewcrestImage has been active. At the beginning of 2022, the firm sold 25 of the 27 hotels in its portfolio. However, by the end of the year, they expect to hold 91 new properties.

While cautious, Patel is still optimistic about next year.

“The future is still very bright,” he said. “We are still looking to buy a lot of assets in 2023.”

According to Carolyn Dent, chair of the Hotel Association of North Texas and managing director of Omni Dallas Hotel, meeting space and hotel room bookings are back to 2019 levels.

After a debilitating period of pandemic restrictions, hotel operators and industry experts are hopeful the worst is behind them. For her part, Dent is optimistic.

“Most of the colleagues I’ve been in touch with are reporting record numbers. … The end of this year was better than the hoteliers expected, and headed into 2023, we all feel really good,” she said.

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