REPORT FROM THE U.S.—Luxury and upscale hotel transactions have received a lot of attention in the United States, but lower-valued deals are churning, too.
Through 26 June, 29 deals have closed, each with a reported sale price of less than US$30 million and in the midscale and economy segments, according to research by STR Analytics, a sister company of HotelNewsNow.com. By comparison, 17 such deals closed during the same period a year ago, representing an increase of 70.6%.
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Jeffrey H. Fisher
president, CEO, and chairman
Chatham Lodging Trust |
Chatham Lodging Trust, for one, has taken advantage of this opportunity. The real-estate investment trust’s strategy is to pick up premium-branded, select-service properties such as Courtyard by Marriott and Springhill Suites.
The REIT this month will officially close on a US$1.13-billion joint-ventured deal to acquire ownership interests in 64 former Innkeepers USA Trust hotels. Separately, Chatham acquired five other former Innkeepers properties that were branded as Residence Inn, Doubletree Guest Suites and Homewood Suites.
The company said it targets select-service partly because those properties are less costly to operate than full-service hotels.
“There are plenty of opportunities for everybody to grow over the next five years,” Jeffrey H. Fisher, president, CEO, and chairman of Chatham said.
Busy brokers
David Mumford, senior principal at Mumford Company, noted an increase in deal flow for hotels at the lower end of the chain scale. “Our pipeline is fuller,” he said. “It seems buyers have been pretty active in the marketplace.”
Mumford said capitalization rates on these smaller deals are in the 10% range.
Al Calhoun, managing director at Jones Lang LaSalle, said some of the deal flow comes from owners looking to capitalize on a rising market. Also, the slowly thawing U.S. debt market is enabling more transactions.
“It’s starting to feel like a normal market,” Calhoun said.
Select-service properties, Calhoun said, are especially attractive acquisition targets these days.
“The industry has come to respect it more and more because of its resiliency and because it diversifies a portfolio.” REITs, private-equity funds and opportunity funds are the most common buyers, and the groups are looking for hotels in top 10 gateway markets, Calhoun added.
The search for debt
Steve Hanover, principal at Sequoia Capital Partners, Incorporated, said smaller, newer-flagged properties in major metro markets valued at US$10 million to US$40 million are most likely to receive financing.
Calhoun said leverage availability has picked up a little bit. He’s seeing 58%-60% leverage on these trades.
Small Business Administration loans are being used in some of these deals, Mumford said.
“Financing is still the most challenging thing on the docket,” he said. “Local banks are not as active.” As such, he said, all-cash deals are prevalent.
