With many experts offering the most positive assessment of the U.S. economy in years, hotel property investors continue to exhibit exuberant confidence in the nation’s lodging sector. US hotels continue to lure domestic and foreign investment and a surge of institutional capital continues to be deployed into single assets and portfolios. Robust investor appetite is expected to continue, with greater participation from a wider array of equity sources. The stars continue to remain aligned and the fundamentals of the US lodging industry are simultaneously favorable to buy, sell, and develop a variety of lodging product types.
The LW Hospitality Advisors Q2 2015 Major US Hotel Sales Survey includes 56 single-asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled roughly $4.5 billion, and included approximately 16,800 hotel rooms with an average sale price per room of $267,000. By comparison, the LWHA Q2 2014 Major US Hotel Sales Survey identified 42 transactions totaling roughly $4.5 billion including 12,800 hotel rooms with an average sale price per room of nearly $354,000. Comparing Q2 2015 with Q2 2014, the number of trades has impressively increased while total volume has remained steady. It is important to note that while the quarter over quarter 33 percent per-room price decline appears dramatic, the Q2 2014 numbers were skewed due to inclusion of the $1.73 billion trade of the 2,995-room Cosmopolitan of Las Vegas.
With 16 major hotel sales, Florida has been by far the most active transaction market followed by California with nine major hotel sales. Million-dollar-plus per-room trades are now occurring on a more frequent basis in top markets including the Q2 2015 sales of the Bardessono Hotel & Spa in Yountville, Calif., and the Marker Waterfront Resort in Key West, Fla., which also set a new record for per-room pricing metrics in Key West. The Waldorf Astoria Chicago trade of $600,000 per room is also a new record for the city of Chicago. Conversely, a record low trade has also occurred, the Revel Hotel and Casino, a bankrupt Atlantic City boardwalk property that originally cost $2.4 billion to build traded for $82 million ($59,000 per room), or 4 cents on the dollar.
U.S. hotel industry fundamentals are anticipated to accelerate during the second half of this year, and remain strong through at least 2016 as domestic corporate travel remains strong and sustained group momentum drives compression across the major markets. Wide open debt markets coupled with abundant sums of available low cost equity from around the globe should continue to fuel a hyper active transaction market. Clairvoyant investors who acquired assets between 2009 and 2011 will continue to bake in dramatic appreciation gains as a result of increasing US hotel values.
It is during robust markets like today that the hotel investment arena attracts newcomers to the sector. Many of these investors underwrite deals based upon an automatic assumption of rapid sale prices increases during a one to three year horizon. Furthermore, they do not consider the ever present possibility of unforeseen market disruptions resulting in a need to hold on to an property during a down and/or turbulent market. Savvy investors know and understand that fundamentally hotels are long-term investments, and while no different than their newbie brethren hope to realize rapid short-term appreciation, they acquire assets that are market priced based upon traditional holding periods of five to 10 years.
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