Today, in less than 3 minutes, we are going to cover the following: Why we need to learn our lessons, even if we did not learn the hard way.
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Made famous by Nassim Taleb, the concept of Black Swan's explains the impact of unpredictable or unforeseen events. These instances usually cannot be predicted because they have not yet ever happened precisely as they eventually transpire.
When I think of Black Swans, I cannot help but wonder if the hotel industry avoided a major such incident during the COVID-19 pandemic.
Now, the COVID-19 pandemic was in itself a Black Swan event. Sure, there have been pandemics before, but not a major one in most of our lifetimes and certainly not one that impacted the global economy like Covid did. However, looking back on it, most hotels survived despite these extreme conditions.
But did we survive for the right reasons?
What doesn't kill you makes you stronger.... Maybe
Governments around the world handled COVID-19 policy in different ways. In Canada, the region I am most familiar with, historical amounts of subsidies were given to employers to keep their doors open. Although, not all governments went to the lengths of Canada, almost all did something drastic for the hotel industry.
But what would we have done if the Government didn't bail us out?
Many hoteliers leverage their assets as much as possible, a double-edged strategy, but one most of us are comfortable with. We all know the risks of being over-leveraged with debt, but wipe-out events are forgotten by some of us. True, many of us have been through hard times, but Covid had the potential to send a lot of us to zero... But it didn't.
With this pandemic behind us, will we ever truly feel its consequences? Or will hotel investing go on as it always does?
Can governments truly just make all our economic troubles go away in worst case scenarios? For a moment, it seemed so, now you have to wonder if we're finally starting to see the repercussions. Interest rates continue to rise and just like your house mortgage no longer makes sense, will your hotel mortgage feel the same upon renewal?
As we know, in our business, it's one challenge to the next, that's real estate.
Perhaps with limited supply entering the market, high interest rates will just be absorbed, but what is the worst case scenario? What if interest rates keep rising? What if high interest rates are mixed in with a prolonged recession? What if another Black Swan event occurs before our Governments have time to recover? Will they be able to print their way out of it?
Rapid expansion is always a strategy, but when it comes to many hotelier portfolios, an argument can be made to focus on sustaining more than just growing.
Perhaps we need to count our blessings, learn from this near miss event and realize a bullet was truly dodged. The next time, we might not be so lucky.
As always, thanks for reading!