While hotel transactions are still happening, the pandemic has driven the number and value of these deals down significantly, according to the LW Hospitality Advisors "Q3 2020 Major U.S. Hotel Sales Survey."
The survey examined 12 single-asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled $829 million and included approximately 2,700 hotel rooms with an average sale price per room of $306,000. Three trades occurred in California and two sales transpired in Arizona, Massachusetts and New York. Five trades had a price of $100 million or more each, while two trades were priced at more than $700,000 per unit.
By comparison, LWHA's Q3 2019 sales survey identified 40 single-asset sale transactions of more than $10 million totaling roughly $3.7 billion, including 13,100 hotel rooms with an average sale price per room of nearly $283,000.
Year over year, the number of trades decreased approximately 70 percent while total dollar volume declined roughly 78 percent. Conversely, sales price per room increased roughly 8 percent.
The Deals
According to LWHA's data, these are the transactions over $10 million:
Acorn Development, an Amazon subsidiary, acquired the 299-room Residence Inn by Marriott Arlington Pentagon City in Arlington, Va., for $148.5 million or nearly $500,000 per unit from Blackstone. Amazon plans to demolish the 24-year-old high rise hotel and incorporate the 1.5-acre site into its HQ2 PenPlace Development. In mid-2019, Blackstone purchased the property for $99.1 million from Host Hotels & Resorts. The latest transaction represents an approximate 50 percent profit within one year for Blackstone. LWHA called the 2020 deal “remarkable” in that Amazon’s HQ2 plans were widely known when HST sold the asset to Blackstone last year.
Magna Hospitality Group purchased the 310-room Embassy Suites by Hilton New York Manhattan Times Square in New York City for a reported purchase price of $115.1 million or roughly $371,000 per unit. The seller, Ashford Hospitality Trust, acquired the property in early 2019 for $195 million, representing a 41 percent decline in value during its 18-month hold.
Xenia Hotels & Resorts announced the sale of the 221-room Residence Inn Boston Cambridge in Cambridge, Mass., for $107.5 million, or approximately $486,000 per room. The sale price represents a 11.6x multiple and a 7.8 percent capitalization rate on the hotel’s 2019 earnings before interest, taxes, depreciation and amortization and net operating income, respectively.
A planned auction of the Viceroy L’Ermitage Beverly Hills in Beverly Hills, Calif., was canceled after no buyer stepped up to bid more than the $100 million ($862,000 per unit) base price established by an unidentified “stalking horse” bidder. The U.S. government seized the hotel in 2016 from a fugitive overseas financier who acquired the property for $46 million in 2010, reportedly with embezzled funds. The U.S. District Court for the Central District of California subsequently appointed a special master to facilitate a sale transaction.
Xenia Hotels & Resorts announced the sale of the 275-room Napa Valley Marriott Hotel & Spa in Napa, Calif., for $100 million or roughly $365,000 per unit. Inland American Lodging Group, XHR’s predecessor, previously acquired the asset in mid-2011 for $72 million.
Apple Hospitality REIT acquired the new 105-room Hyatt House and 154-room Hyatt Place in Tempe, Ariz., for $64.6 million, or approximately $249,000 per key. In 2018, Apple contracted with a joint venture that included Catellus & Mortenson Development to develop the hotels and secured the purchase price prior to the start of construction.
A joint venture between BLVD Hospitality, Global Mutual and ESI Ventures purchased the 84-room Georgian Hotel in Santa Monica, Calif., for $62.5 million or nearly $745,000 per unit from 4DS. The art deco boutique property, which was built in 1933 and last sold in 1991, is commonly referred to as Santa Monica’s “First Lady.”
A joint venture comprised of Highgate and Rockpoint Group sold the 168-room Royalton New York hotel to MCR for a reported $40.8 million, or $243,000 unit. During the past decade, the property has changed hands twice, representing a decline in pricing on each occasion. The current seller had acquired the asset for $55 million in 2017 from FelCor Lodging Trust, and who in turn had paid $88 million for the property in 2011. According to the report, Highgate, the largest hotel operator in New York City, has a “terrific track record of success.”
The 97-unit Gold Canyon Golf Resort and Spa in Gold Canyon, Ariz., sold for $29.43 million or $303,000 per key. The 370-acre property situated roughly 40 miles east of Phoenix, includes two 18-hole championship golf courses and 67 acres of developable land.
Vinakom Communications purchased the 568 room DoubleTree by Hilton Bloomington Minneapolis South for $26 million or roughly $46,000 per unit. During the past several years, the buyer has diversified its investments through the acquisition of hotels and office buildings.
Private equity firm Blue Flag Partners acquired the historic 57-room Kelley House Hotel in Edgartown, Mass., for $19.64 million or nearly $345,000 per room. The Martha’s Vineyard property dates to 1742 and is one of the five oldest hotels in the U.S.
The Estate Cos., a South Florida-based developer of luxury multi-family communities, purchased a five-acre site occupied by a 258-room former Ramada Hotel in Hialeah, Fla., for $15.25 million or $59,000 per unit. The property last sold in 2014 for $13.5 million.
Anemic Activity
The onset of the COVID-19 pandemic earlier this year has resulted in a reset in hotel property values, the report noted. Many market participants are struggling to determine an applicable discount to pre-COVID levels.
Q3 2020 was the second consecutive quarter during which U.S. hotel market transaction activity remained anemic with a relatively wide bid-ask spread. Sellers have reportedly expressed willingness to consider a 10 to 15 percent discount to pre-COVID pricing while buyers are interested in transacting at a 20 to 40 percent reduction to pre-COVID values. Price discovery will only be clarified once an active hotel transaction market reemerges.
The report did offer some reasons for hope: While the near-term travel market appears bleak, the hotel investment market has seen a "surge" of interest from institutional and high net worth sponsors who are familiar with the sector and know how to assess the risks associated with capitalizing lodging assets. Pre-COVID hotel investor returns generally reached new lows as asset prices were relatively high. Today, with mounting operational losses, especially for larger, full-service assets, and the continued requirement to service debts, pressure is intensifying on owners to capitulate to realistic property values, which will ultimately enhance returns on lodging investments for buyers in the market today.
"Long-term opportunistic investors that bet big, at the right basis, and early in the cycle will likely reap tremendous financial rewards, particularly contrarian sponsors who acquire large urban corporate and group meeting/convention hotels at fractions of replacement cost," the report claimed, predicting well-capitalized opportunistic participants in the U.S. hotel industry will "generate outsized returns" by acquiring and investing in loans, assets, and operating companies at historically low prices "in the not too distant future."