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5 things to know: 25 January 2013
January 25 2013

• Scotland hotel returns outperform Europe
• Brazil consumer confidence wanes, Europe’s picks up
• JLL: Investment capital funneled into real estate
• US resort sector experiencing rebound
• Sunstone planning to sell 1,222-room portfolio

Scotland is outperforming every other European country when it comes to investment returns in the leased hotel sectors, according to research from Scottish Development International and the Investment Property Databank Limited. Scottish leased hotel returns are ranked second out of nine European countries; the rest of the United Kingdom came in first.

Other key insights from the inaugural research include:

  • Between 2009 and 2011, Scottish leased hotels produced total returns of 6.9% year over year, compared to Germany, which achieved 4.4% and the rest of the U.K. with 9.5%.
  • During 2011, hotels as a real estate asset class demonstrated total returns growth from 9.2% in 2010 to 9.5% in 2011.

The hotel sample included 434 real estate properties, valued at €9 billion ($12.2 billion) at the end of 2011. In Scotland, the sample was valued at $184 million, containing 16 properties at an average value of $11 million.

Brazil’s main consumer confidence index dropped for the fourth consecutive month, decreasing from 118.7 points in December to 117.9 points in January, according to the Getulio Vargas Foundation.

Dow Jones Business News reports tepid economic activity and accelerating inflation were the cause for the drop. The index has a 1-to-200 point range, with 100 considered an indicator of neutral sentiment and polls 2,000 families in Brazil’s seven largest cities.

Brazil’s economy, which expanded at an estimated 1% last year, is expected to grow approximately 3.5% in 2013.

Meanwhile, in Europe, consumer confidence rose for the second month in January, adding to signs the 17-nation economy might be emerging from the recession.

The index of household confidence in the currency bloc increased to negative 23.9 from a revised negative 26.3 in December, according to the European Commission in Brussels. This is the second increase after the sentiment reached a three-and-a-half-year low in November 2012.

Investors are responding to shifting economic conditions by funneling more capital into commercial real estate, particularly in the Asia/Pacific region, according to “The Advancement of Real Estate as Global Asset Class” report by Jones Lang LaSalle.

The company estimates the direct commercial real estate transaction market will exceed $1 trillion per annum by 2030, compared with 2012 volumes of nearly $450 billion.

The report also found:

  • Asia/Pacific has outpaced other regions in real estate activity since the global financial crisis, achieving commercial real estate investment volume in 2012 equal to 77% of the previous peak reached in 2007. The Americas have reached 62% of that level, while Europe’s investment volume is 46% of its peak amount.
  • The impact of the growing pool of capital seeking exposure to real estate can be substantial. A 1.2% reallocation to real estate by the 30 largest sovereign wealth funds would increase capital allocation by $50 billion.

The resort segment is experiencing significant returns in demand, an infusion of capital expenditure from owners and interest from outside buys—as well as the availability of debt and capital to support it, panelists said during the Americas Lodging Investment Summit.

“Lenders are still conservatively underwriting resorts, but if you have a good story, you’re a good sponsor and you have a track record of success they’re now looking at your future 12 months instead of just your past 12 months,” said Robert Lowe Jr., CEO Of Lowe Hospitality Group, which has more than 35 independent luxury and upscale hotels and resorts under management.

Although opportunities are opening up in other markets, the top resort areas still comprise the usual suspects: Hawaii, Miami and the southern California coast.

Orlando, Florida, is also on the rise, as is New York.

Sunstone Hotel Investors is planning to sell a four-hotel 1,222-room portfolio and a laundry facility for $230 million in Rochester, Minnesota.

The four hotels include: the 660-room Kahler Grand; the 271-room Kahler Inn & Suites; the 202-room Marriott Rochester; and the 89-room Residence Inn by Marriott Rochester.

With the sale to close at the end of January, Sunstone expects to receive initial net proceeds of approximately $165 million, subject to closing costs, from the sale of the Rochester Portfolio and plans to use the money for hotel acquisitions, renovations of existing hotels, reduction of debt or preferred securities, as well as other corporate purposes.

Compiled by Alissa Ponchione

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