“Frothy” is a word that comes into vogue in the hotel investment community about every seven to 10 years. Today, it’s back in fashion. I’m glad to hear it, and I’m sure I will hear it a lot this week at The Lodging Conference in Phoenix.
Hotel executives and investors talk about a frothy hotel market when things are all pointing in the right direction, as they are today. Hotel performance is back to near pre-recession peaks, supply growth is low and, most importantly, the hotel industry is the hot sector in the world of commercial real estate.
A lot of this buzz has to do with timing. Last week might have been the tipping point that brought a bright, positive spotlight on the hotel industry, creating new or renewed interest among equity and real estate investors who have not considered the hotel sector previously or at least not since the last peak in the market.
Consider these newsworthy developments, all breaking last week:
- The headliner, of course, was the $1.25-billion (at least at first) initial public offering filing by Hilton Worldwide Holdings. Even though this event was widely expected, the announcement was the talk of the hotel and real estate industries for several days. And more news is certain to come from this deal.
- On the global front, the Abu Dhabi Investment Authority paid a reported $740 million for a portfolio of 31 Accor-branded hotels in Australia. The mega-purchase was the fifth major portfolio sale in recent years in the country, with most of the buyers coming from Asia and the Middle East.
- A less-talked-about, but potentially even more explosive story came from China, where the country’s reportedly richest man, Wang Jianlin, said in an interview he hired two investment banks to explore the acquisition of hotel management companies, mostly in the United States. If true and his plans come to fruition, the global hotel landscape could change materially.
There have been other acquisitions and development announcements of note in recent weeks, but these three, all within a couple of day of each other, show how the hotel market is sizzling—a development that has both positive and negative implications.
This frothiness paves the way for other investors to look at hotels through a new lens, one that highlights the upside opportunities left to be gained. After all, Hilton owner Blackstone Group LP doesn’t initially plan to sell its entire stake in the company in the IPO, signaling its continued confidence in the market.
On the other hand, new interest in the hotel market could lead to speculation and some risky deal making if investors sense a stampede on hotel assets. So far, the hotel recovery has been deliberate and well-paced. Intense frothiness could alter that scenario.
In the meantime, whether you’re a hotel owner, investor, operator or even an employee, it’s time to sit back and enjoy our turn in the spotlight. Just be sure not to get blinded by the glare.
And finally
A footnote to last week’s buzz over the Hilton IPO: I stumbled across yet another sign we’ve been transported back to the industry’s previous heyday. One of the many media stories I read last week about the deal referred to Paris Hilton in the story’s first paragraph.
I thought all those jokes died with the industry downturn and her fall from celebrity royalty. I hope this doesn’t mean she’s making a comeback. Haven’t we suffered enough?
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