ST. LOUIS—If asked about his confidence level in the St. Louis hotel market, Bob O’Loughlin need only point to his portfolio.
Lodging Hospitality Management, of which O’Loughlin is chairman and CEO, owns and operates 18 hotels comprising 5,000 rooms in the city.
There are 330 properties with 38,782 rooms in the greater St. Louis, Missouri-Illinois market, according to STR, parent company of the Hotel Investment Barometer.
LHM’s all-in mentality was not necessarily by design, the chairman said.
“Seems like every time a hotel’s for sale, we get a call,” O’Loughlin said. “If the price is right and the location is right, we buy it. No rhyme or reason; we don’t have a strategy.”
But his 26 years in the market has taught him a thing or two about investing in hotels in America’s “Gateway to the West.” Among them: “It’s not a lot of high highs or low lows. If you buy a hotel at the right price, there’s a good stable business climate with a mixture of companies that is usually pretty steady through recessions and then when business is good.”
The resiliency of the market was echoed by Dan McCoy, senior VP of HVS, whose office is in St. Louis.
“The market wasn’t impacted (by the downturn) as severely as a lot of other markets. With St. Louis, you see the lows aren’t nearly as low as a lot of other areas and the highs aren’t quite as high.
“The economy’s really diversified here,” he added. “We have an energy industry, banking, life sciences, food production, pretty strong education and government sectors as well. Everything’s kind of spread out, so it doesn’t seem like anything takes too severe of a hit at any one time that sends everything off kilter.”
St. Louis ended 2011 with a 2.9% occupancy increase to 58.5%, a 3.4% year-over-year increase in average daily rate to $83.78, and a 6.3% increase in revenue per available room to $49.05, according to STR.
Through May 2012, the market has recorded increases in occupancy, ADR and RevPAR of 4.6%, 5.1% and 9.9%, respectively.
Piquing investor interest
With stability comes a relatively quiet transactions market. The most active player in recent years, not surprising, is LHM.
The company has acquired four hotels during the past few years. The most recent was the 596-room St. Louis Airport Marriott, which LHM acquired for approximately $30 million, O’Loughlin said. Prior to that, the company acquired the 223-room DoubleTree by Hilton Hotel & Conference Center St. Louis for approximately $6 million.
LHM puts 30% to 40% of cash into every deal and adopts a long-term hold strategy, he said.
“We’ve actually bought four hotels in the last two years. We’ve been very active. I don’t see a lot changing hands. With the recession and the uncertainty in what direction our country and the world is going, everybody that has money kind of sits on it unless there’s a real good buy,” O’Loughlin said.
“The four hotels we bought were really good buys.”
Inland American Real Estate Trust headline the market’s other notable transaction in the past year. The trust purchased the 195-room Hilton St. Louis Downtown from American Property Management Corporation for $22.6 million on 28 March.
“We took that as a positive sign for the investment outlook for the area that we had a national REIT buy a full-service property here that wasn’t a repositioning situation,” McCoy said. “It was one of our full-service properties that was attracting attention form a national investor.”
Representatives from Inland declined to comment for this report.
“From a national investor’s perspective, St. Louis can be a good market to diversify their portfolio,” McCoy said. “It’s a (safer), stable investment that might not grow as quickly as some other markets.”
There also is very little new supply, he added.
STR tracks only 11 properties in the total active pipeline. Of those, five are in the planning stage and six are in the final planning stage. No hotels are under construction.
There’s only one notable challenge, O’Loughlin said.
“Perception more than anything else,” he said. “(But the) people who move here, the quality of life is very good.
“I don’t see any real challenges.”