Hotel Market Transactions Up 40% This Year to $5.7 Billion
Strong Lending Environment and Abundance of Equity Equate to a Liquid Market
June 4, 2014
Almost midway through 2014, the U.S. lodging sector is on track to reach $25 billion in transaction volumes in the U.S. in 2014, according to JLL's Hotels & Hospitality Group.
Driving the forward momentum are factors including:
An abundance of equity capital, led by private equity and REITs, but also including a diverse array of other investor types, including off-shore buyers;
Strong debt markets, including the re-emergence of the floating rate CMBS market;
The resurgence of the resort sector; and
Rising revenue per available room (RevPAR).
"With $8.3 billion already tallied in hotel transactions in the U.S., 2014 is on track to contribute to the hotel sector's momentum," said Arthur Adler, Americas CEO and managing director of JLL's Hotels & Hospitality Group. "There is plenty of available capital chasing assets ranging from high-profile full-service hotels to select service portfolios to resorts in markets across the spectrum."
REITs Continue To Be a Force
Many of those factors have been evident in the past few weeks.
Strategic Hotels & Resorts Inc. expects to raise more than $400 million from a common stock offering. The company intends to use the net proceeds to fund the acquisition of the 63.6% ownership interest in the Hotel del Coronado. Blackstone Group is selling the stake in the landmark 757-room San Diego hotel for $210 million.
RLJ Lodging Trust raised more than $230 million this month from a public stock offering. The company intends to use the net proceeds to fund additional acquisitions.
This past month, RLJ Lodging acquired two West Coast hotels, the 256-room Courtyard Portland City Center in Portland, Oregon, and the 293-room Embassy Suites Irvine Orange County in Irvine, California, in an off-market transaction. The combined purchase price was $120 million, or approximately $219,000 per key.
The Revival of Resorts
Also last month, Hersha Hospitality Trust agreed to purchase the 148-room Parrot Key Hotel & Resort in Key West, FL for $100 million.
The hotel operated at an average daily rate (“ADR”) of $230.52 and occupancy of 92.3% in 2013. The Key West market is currently forecasted as one of the strongest RevPAR growth markets in the country and the property is forecasting RevPAR growth in excess of 10% for 2014.
According to JLL, resorts are a hot item as sales transactions for the asset class reached $2 billion during the first five months of 2014.
Other recent high-profile resort transactions include The St. Regis Bal Harbour Resort in Miami which sold for $213 million in January 2014, and the Ritz-Carlton Kapalua which sold for $142 million in February 2014.
"During the first quarter, resort assets notched nearly 30% of total transactions as consumer confidence continues to make gains," Adler said. "Competition is high as resorts under construction make up a mere one percent of the supply of resort properties in the U.S., meaning the sector will experience strong gains in RevPAR as demand continues to grow."
Price(ier) Per Key
High-quality asset transactions have dominated much of 2014's market activity. The average price per room of trades during the first five months of the year is up 15 percent from the same prior-year period, driven by continued RevPAR increases. This year marks the fifth consecutive year of RevPAR growth since the downturn, and the momentum shows no signs of slowing.
Secondary markets like Denver, Nashville and Phoenix have experienced exceptional RevPAR growth, all posting double-digit increases thus far in 2014.
"As 2014 marks the fifth consecutive year of RevPAR gains, we believe that the lodging industry is solidly in the middle of a long-term upward trajectory. We believe that this cycle will extend longer than the nine-year run that took place from 1992 through 2000. As we look toward the next two quarters of 2014, we anticipate investors will continue making investments in the lodging sector to capitalize on the sector's strengthening recovery," said Adler. "Strong debt capital markets, plenty of equity capital and more available product have led to positive investor sentiment and rising liquidity."