Private equity continues love affair with hotels6 Sep, 2013 By: David Eisen
Forbes today asks: What do private equity firms love so much about the hotel industry? Forbes cites Hilton Worldwide and Motel 6, among other companies owned by PE firms. (Though if recent news is any indication, Hilton may not fall into this group for long.)
The players: Blackstone Group, Apollo Global Management, Starwood Capital and Oaktree Capital Management are among some of the biggest buyers of the last decade, the story states. Here's the reality: U.S. hotel transactions are still far off their 2007 peak, when hotel transactions totalled $47 billion. Compare that to 2012, when hotel transaction volume reached $16.3 billion. You do the math!
Fact is, though real estate investment trusts are steadily making acquisitions, it's private equity that is prevailing. Forbes writes: "Ten years ago, among the top 10 largest hotel owners, private equity firms owned 12 percent of hotel rooms while REITs owned 67 percent of rooms. Today PE firms own 59 percent, while REITs have scaled back owning 33 percent of hotel rooms in 2013.
"Private equity firms have been the largest and most acquisitive group of hotel buyers in the U.S. thus far in 2013, accounting for a buyer share of 37 percent," Lauro Ferroni, director of hotels research at Jones Lang LaSalle in Chicago, told Forbes. “They’re nimble and can put a deal together quickly.”
No doubt Blackstone wears the crown, owning such well-known hotel companies as the aforementioned Hilton, La Quinta Inns & Suites and Extended Stay America. In July it filed to take ESA public.
Blackstone's biggest move should come later this year when it’s expected to take Hilton public. It bought the hotel company before the recession for $26 billion plus debt.
Blackstone isn't the only whale. Apollo acquired Great Wolf Resorts in a deal worth $740 million in 2012. Oaktree made a one-off deal when it picked up the Fairmont San Francisco for $200 million in May 2012. Meanwhile, there was Apollo and TPG’s $27-billion purchase of Harrah’s Entertainment in 2006.
So, as Forbes asks, "Why all the private equity love for hotels?" The answer: Compared with REITs, "private-equity firms have more buying power and risk tolerance in volatile environments. They also like that they can be hands-on as hotel owners and can revamp operations."
And their acquisitions are paying dividends, in part due to a robust operating environment, where there still remains a dearth of new supply, which is allowing operators to step on the rate pedal. The long-term average for annual hotel room supply is about 2 percent. In 2011, supply increased just .5 percent; in 2012, the number was .2 percent.
Topic : Private-Equity Firms, REITs
External Source : Forbes, Hotel Management
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