Q1 hotel deals show US heartland shift

• 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:

“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

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.