While the debt capital markets remain constrictive for big-ticket investment sales transactions, trading opportunities prevail for select service properties, according to Jones Lang LaSalle Hotels’ bi-annual U.S. Select Service Hotel Investor Survey. Jones Lang LaSalle Hotels’ proprietary survey was completed by 500 of the nation’s top select service hotel owners and investors.
“Full service hotel transaction volume has slowed substantially, but there still remains steady investor interest and trading activity in the select service market as pockets of financing are available for hotels trading for $15 million and below,” said Al Calhoun, managing director of Jones Lang LaSalle Hotels’ select service division.
The survey also indicated hotel investors are increasingly looking to local banks, government sponsored Small Business Administration (SBA) and U.S. Department of Agriculture (USDA) guaranteed loans and private equity for acquisition financing.
“Over one third of investors surveyed indicated local banks are their primary source of debt. Many such smaller banks were able to side step the sub-prime mortgage meltdown and were not involved in CMBS debt syndication,” said Calhoun.
Additionally, almost 20 percent of survey respondents are turning to private equity for financing, up from 15 percent in mid-2008.
“Traditionally, private equity groups provided mezzanine or bridge loans, but with the lack of available debt from institutional lenders and the virtual shutdown of the commercial mortgage-backed securities (CMBS) market, private equity is being widely sought as senior position permanent loans” said Mark Fair, managing director of Jones Lang LaSalle Hotels’ select service division. “Joint venture equity has become a more popular structure with these funds, as many private equity firms have cash available to invest.”
The survey reveals that 55 percent of investors are targeting distressed assets and loans/notes because of their significant discount to replacement cost. “This underlines the fact that numerous equity-rich buyers are looking for opportunistic acquisitions in the market,” said Calhoun.
Opportunities to purchase distressed assets are still infrequent. Sixty-six percent of select service investors surveyed indicated that the bulk of their debt maturities will not come due until 2012 and beyond. “Investors with performing properties are not under extreme pressure to sell, though the assumable financing on their assets may be an attractant to investors today,” said Calhoun.
Forty-five percent of investors indicated an intention to ‘hold’ their assets, now overtaking the ‘buy’ sentiment as the dominant investor intention over the next six months. That said, buyers are still evaluating acquisition opportunities. A stable 38 percent of respondents indicated a dominant intention to buy assets, reflective of their strong equity position. According to the survey, buyers now outnumber sellers by more than 6:1 and buyers are awaiting new assets to come on the market.
The U.S. recession and the stagnant debt markets also have taken a huge toll on investor confidence, as 84 percent of select service investors surveyed anticipate RevPAR declines over the next six months. “But investors’ medium term trading performance outlook is markedly more positive and suggests that RevPAR growth could resume a year from now,” said Fair.
To request a copy of Jones Lang LaSalle Hotels’ full research report, U.S. Select Service Hotel Investor Survey, visit www.joneslanglasallehotels.com or www.jllhss.com.
About Jones Lang LaSalle Hotels
Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide the depth and breadth of advice required by hotel investor and operator clients, through a robust and integrated local network. In 2008, Jones Lang LaSalle Hotels provided sale, purchase and financing advice on over $3.7 billion worth of transactions globally relating to more than 120 assets. In addition, advisory and valuation services were provided on more than 600 assignments. The global team comprises over 220 hotel specialists, operating from 32 offices in 19 countries. The firm’s advice is supported by a dedicated global research team, which produced 87 publications in 2008 in addition to client research. Jones Lang LaSalle Hotels’ services span the hospitality spectrum; from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Their services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels’ clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com.
