NEW YORK CITY — Hotel transactions in the U.S. are picking up in size and volume, and it's because a few key elements are "moving in a positive direction," said Kevin Davis, Americas CEO of JLL's Hotels and Hospitality group.
Chief among those: lower cost of debt.
Despite increasing treasury rates tied to geopolitical and economic movement, Davis pointed out that the financing scenario for hotel investors is improving.
"A lot of the investors in our sector tend to borrow against floating rate, which is tied to the Fed funds rate ... and that continues to be relatively low," he said. "The lower cost of debt, the ready availability of debt, has contributed to an increase in transaction volume."
Davis spoke with CoStar News at the NYU International Hospitality Investment Forum in early June.
All in all, that lower cost of debt to finance hotel purchases, plus the higher cap rates Davis noted, "has facilitated a bridging of the bid-ask, and that's why I think you've seen more transactions take place."
Add in strong revenue per available room performance trends for U.S. hotels so far this year, a still-low hotel supply environment and continued demand for luxury hotel and resort assets, and the transactions environment is solid, he said.
Davis also shared insights on JLL's involvement over the years with the Diplomat Beach Resort in Hollywood, Florida. Earlier this year, JLL arranged a refinancing on the soon-to-be Signia by Hilton-branded resort for owners Trinity Investments and UBS Asset Management's Global Real Assets business. JLL had previously worked on the hotel's 2023 sale to Trinity and subsequent refinancing.
Davis said this hotel reflects "the definition of irreplaceable."
"It illustrates the power of the Sun Belt and Florida and resort markets in particular, but what you have at the Diplomat is a strong group hotel, with the ability to flex into leisure," he said. "There was incredibly strong investor interest for that profile of asset several years ago, and I would argue even stronger interest in that profile of asset today."
For more from JLL Hotels & Hospitality's Kevin Davis, watch the full interview above or listen via podcast: