BOULDER, Colorado—With half the year in the books, it is safe to say the landscape for U.S. hotel investments has changed to some degree.
As many analysts expected, the pace of acquisitions by real-estate investment trusts slowed through the first half of the year. During 2011, REITs accounted for 35% of hotel deals in the U.S. During the first six months of 2012, REITs acquired only 16% of assets.
Apple Real Estate Investment Trust, Inland American, RLJ Companies and Summit Hotel Properties have been the more active REITs throughout the first half of the year.
Private equity appears to be stepping off the sidelines to fill the void left by REITs. After only accounting for 7% of the deals in 2011, private equity was involved in 16% of the purchases during the first half of 2012. Starwood Capital Group and Noble Investment Group have been the two most active private-equity groups this year.
Click to enlarge.
The hotel deal landscape will be addressed in depth during a panel titled “Deal or no deal: Hotel transactions data” during the Fourth Annual Hotel Data Conference, held 5-6 September at the Loews Vanderbilt Hotel in Nashville, Tennessee.
Part of the change in asset purchasers this year might be due to the changing dynamics in the industry. Cash flows are growing, demand is peaking and room rates (finally) appear to be making a comeback. Consequently, there are fewer “deals” to be had. The number of assets in distressed situations is declining. In 2011, almost one-third of hotel transactions involved a troubled asset. However, through June of 2012, only 13% of hotel transactions included a struggling property.
Click to enlarge.
One thing that has not changed in 2012 is the allure of New York as the most coveted market for hotel investments. Manhattan continues to attract the most buyers with eight transactions year to date. Moreover, the potential sale of the New York Plaza, which might occur by the end of the year, could be one of the top deals of the year.
Lower Manhattan was the most active tract within the New York market, accounting for four of the city’s deals. Chicago was the second most active market through the first half. Washington, D.C., also continues to have strong investment appeal with pricing averaging $341,000 per key.
Fewer luxury assets have traded in the first half of 2012. Investors appear to be focusing more on strong upscale brands in solid markets. Nevertheless, overall pricing benchmark for transactions has remained relatively stable in the range of $190,000 per room.
It remains to be seen how the second half of the year will unfold. Nevertheless, it seems clear that with the slowdown in upper-upscale and luxury hotel acquisitions, the overall deal volume for 2012 will be below the $19.4 billion that occurred in 2011.