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Hotel Sales Surge in First Half, Powered by Large Deals Involving Private Equity Funds

Blackstone, Fortress Drive Hotel Sales to Outpace Office and Retail Demand
July 20, 2018
Blackstone Group paid $1.64 billion in April for a trio of resort properties, including the Grand Wailea on the south Maui island of Hawaii (pictured).

Large hotel deals pushed U.S. lodging and hospitality sales ahead of all other major property types in the first half of the year, with Blackstone Group and other private-equity buyers paying top dollar for luxury and resort properties.

Hospitality investment sales surged 25 percent in the second quarter and 30 percent for the first half of 2018 from a year earlier, according to the latest CoStar data. The $18.1 billion in total first-half hospitality transactions matches the $18.1 billion for the first half of 2016 but falls short of the almost $27 billion in that portion of 2015, the height of the hotel consolidation spree.

"Hotel fundamentals are still really strong," said Jeff Myers, managing consultant and lodging specialist for CoStar Portfolio Strategy. "Many markets across the country have occupancies at or near record-high levels."

Hotel demand surged as U.S. sales of offices slid 17 percent, retail fell 18 percent and mixed-use properties declined 29 percent in the first half from a year earlier, according to recent CoStar data.

High-value hotel deals of $100 million and above fell 25 percent from 2015 through 2017 and were a big reason overall hotel sales dollar amounts slowed, Myers said.

"Big-ticket hotel deals have closed with a little more regularity this year, contributing positively to volume," Myers added.

Portfolio sales, which typically drive hospitality investment, accounted for the largest deals in the first six months, topped by Blackstone Group's $1.64 billion purchase in April of a trio of resort properties from Singapore-based GIC Real Estate. The portfolio included the Grand Wailea on the south Maui island of Hawaii; the La Quinta Resort & Golf in La Quinta, CA; and the Arizona Biltmore Resort & Spa in Phoenix.

A Hong Kong investor bought a portfolio of seven properties in six states from Baring Real Estate Advisors for $650 million in a deal that closed at the end of January. The $1.2 billion bankruptcy sale of the 35-property John Q. Hammons Hotels & Resorts chain also accounted for a sizeable share of sales in the first half.

Real estate investment trusts had a slice of the action in the first six months. Host Hotels & Resorts bought the Grand Hyatt San Francisco; the Hyatt Regency Coconut Point in Bonita Springs, FL; and the Andaz Maui at Wailea on Maui from Hyatt Hotels Corp. for a combined $1 billion on March 29.

Hospitality deals made up at least a quarter of spending from private equity sources such as Blackstone as of the first quarter, according to CoStar data.

Debt funds are emerging as a major source of financing purchases of U.S. hotels, which are traditionally financed by banks and securitized loans, according to Kevin Davis, managing director for Jones Lang LaSalle's New York hotels and hospitality team.

"Over the course of 2018, hospitality debt markets have been exceptionally strong, which is a trend we expect to continue," Davis said.

The largest single-property lodging sale of the year to date is for the Marriott Edition in Manhattan, a hotel on Times Square at 701 Seventh Avenue that hasn't opened yet. Maefield Development and Fortress Investment Group bought out its partners in the 39-story hotel-and-retail property scheduled to open this year, including The Witkoff Group, Ian Schrager, New Valley and Winthrop Realty Trust, for $1.53 billion.

Three markets logged more than $1 billion in sales in the first half, led by New York City at $2.1 billion, compared with just $367 million in the first half of 2017, according to CoStar data.

Sales increased 60 percent from a year earlier in Washington, D.C./Northern Virginia/Maryland to about $1.1 billion, and jumped to just more than $1 billion from $237.8 million in Phoenix.

FIRST-HALF OVERALL COMMERCIAL REAL ESTATE RESULTS: U.S. Property Sales Fall 8% in the First Half of 2018

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