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Q1 hotel deals show US heartland shift
April 24 2012

Hotel acquirers slowly are beginning to move away from their U.S. coastal comfort zones to the middle of the country, an analysis of Q1 hotel trades by LW Hospitality Advisors shows.

Highlights
  • During Q1, hotel transactions occurred in Illinois, Missouri, Tennessee and Minnesota.
  • There were 25 single-asset hotel trades not part of a portfolio deal during Q1, representing a total deal volume of approximately $1.9 billion.
  • The unstable lending market worked to quell the number of Q1 deals, according to LW Hospitality Advisors’ Dan Lesser.

NEW YORK—Investors appear to be looking farther afield when it comes to hotel acquisitions.

Acquirers have long sought hotel deals in key U.S. coastal gateway markets such as New York and San Francisco. But in its analysis of hotel transactions during the first quarter, LW Hospitality Advisors LLC found that acquirers began to show a willingness to tiptoe away from the coasts to the U.S. heartland.

Of the 25 single-asset sales that were not part of a portfolio deal, a total of four occurred in Illinois, Missouri, Tennessee and Minnesota. Examples include Inland American Real Estate Trust’s $22.6-million purchase of the 195-room Hilton St. Louis Downtown and RockBridge Capital’s $18.5-million deal for the 304-room University Hotel Minneapolis.

“It’s starting to broaden out,” LW President and CEO Dan Lesser said. “Folks are definitely seeing opportunities in the middle of the country. … There are tremendous opportunities in the middle of the country.”

Deals taking place during the quarter in states that are not on a U.S. coast include:

Hotel Location Rooms Estimated price Buyer Seller
Seneca Hotel & Suites Chicago 264 $35.6 million Waterton Associates LLC IRMCO Properties & Management Corporation
Westward Look Resort Tucson, Arizona 244 $31.6 million Westward Look Resort LLC American Property Management Corporation
Courtyard by Marriott Nashville Vanderbilt/West End Nashville, Tennessee 215 $27.5 million Noble Investment Group Moody National Bank
Rittenhouse Hotel Philadelphia 111 $23.9 million Hersha Hospitality Trust N/A
Hilton St. Louis Downtown St. Louis 195 $22.6 million Inland American Real Estate Trust APHM St. Louis LLC
University Hotel Minneapolis Minneapolis 304 $18.5 million Rockbridge Capital Maddux Hotel Corporation

Source: LW Hospitality Advisors

The hotel sector’s rebound has emboldened investors to begin looking for deals outside of their coastal comfort zones, Lesser said. He added that deals taking place in the middle of the country seem to be based more strongly on hotel performance. Coastal deals, on the other hand, could be more driven by “ego capital.”

 

“The hotel investment scene is all about value-enhancement,” he said. “Every developer, every owner, every operator looking at an asset believes they can do a better job than the previous folks.”

By the numbers
The 25 first-quarter deals represented a volume of approximately $1.9 billion and comprised approximately 7,200 rooms at an average price of $260,000 per room. By comparison, during the same period a year ago there were 36 deals representing a deal volume of more than $2.8 billion comprising more than 14,400 rooms. Average price per room during the same quarter a year ago was $193,000.

Pricing is still largely dependent on geography, Lesser said. Coastal deals, for instance, will command much higher prices. As an example, Lesser referenced the 64-room Hotel Williamsburg in Brooklyn, New York, which sold for $515,625 per room to King & Grove. Also, New York’s 165-room Cassa Hotel was sold to HNA Property Holding Group for $787,879 per room.

 

Dan Lesser, LW Hospitality Advisors LLC President and CEO

Lesser attributed the slowdown in deal volume to the state of the lending market. “The availability of debt is oscillating,” Lesser said. “The spigot is not wide open just yet. That’s what’s been holding it back.”

 

Still, he expects deal volume to continue to increase going forward, driven at least partially by commercial, mortgage-backed securities maturing.

“There’s a wall of CMBS maturing, many of which are performing; the debt has been serviced, but the loan is maturing,” he said. “The ability (of borrowers) to pay off these loans is where the challenge will be. There is equity on the sidelines tethered to the hotel industry and will come in and either take over the assets through foreclosure or work on a restructuring with the existing borrowers.”

Top 10 Q1 deals
Listed below are the top 10 first-quarter single-asset hotel trades in the United States by price, according to LW’s analysis.

 

Hotel Location Rooms Estimated price Buyer Seller
Park Central New York 934 $396.2 million LaSalle Hotel Properties Highgate Holdings
Fairmont San Francisco San Francisco 591 $200 million JV Woodbridge Capital Partners and Oaktree Capital Management LP JV Maritz, Wolff & Company and Kingdom Holding Company
Doral Golf Resort and Country Club Miami 692 $150 million The Trump Organization Paulson & Company
Hotel Palomar Washington, D.C. 335 $143.8 million LaSalle Hotel Properties Kimpton Hotel & Restaurant Group LLC discretionary equity fund
Cassa Hotel New York 165 $130 million HNA Property Holding Group Assa Properties
Knickerbocker Hotel New York 330 $115 million FelCor Lodging Trust Walton Street Capital LLC
San Francisco Airport Marriott Burlingame, California 685 $108 million Inland American Real Estate Trust Host Hotels & Resorts
Novotel Times Square New York 480 $93 million JV Chartres Lodging Group and Apollo Global Management Accor
Hampton Inn Empire State Building New York 146 $69.5 million RockBridge Capital Magna Hospitality
Avalon Hotel New York 100 $48.3 million 16 East 32 Ferrado US LLC

 

Source: LW Hospitality Advisors

 

 

 

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