US election clarity could spur deals

• Through June, just $5.9 billion of U.S. hotel transactions had closed, compared to $19.4 billion for the full year 2011.
• Knowing who’s going to be president over the next four years will provide additional clarity to hotel investors, sources reported.
• “I’ve never heard people say they really changed their business outlook based on who the president is,” STR Analytics’ Steve Hennis said.

REPORT FROM THE U.S.—The U.S. transactions market has sputtered throughout the better part of 2012. But the upcoming presidential election might be the remedy needed to kick-start the market, transactions experts report.

Through June, just $5.9 billion of U.S. hotel transactions have closed, according to STR Analytics, sister company of HotelNewsNow.com. That compares to $19.4 billion for the full year 2011.

According to several sources contacted for this report, one possibility is that investors are waiting until after the election to make their buy and sell decisions.

“It’s not so much who gets elected,” said Steve Hennis, director at STR Analytics, it’s about knowing who will be president. “You’ll have some sense over the next four years of who will be in office.”

Steve Hennis STR Analytics

Donald Wise, managing director at Turnbull Capital Group, said clarity is the key.

“The capital markets will be happy, and people will want to be aggressive again” once it’s apparent who will be president during the next four years, he said. “Arrows are going the right way.”

Enrique Torres, an analyst at Green Street Advisors, disagreed with the views of Hennis and Wise.

“I don’t know if the (election) will register as a blip,” he said.

Capital gains
What would register as a blip, however, would be the economic policies enacted by the U.S. president, sources said. That includes the looming fiscal cliff, which could include an increase in the capital gains tax. The capital gains tax is 15% but could rise to 25% if the fiscal cliff goes into effect.

Some sources speculated that the potential increase might incent sellers to offload product more quickly than they otherwise would want.

Mark Woodworth PKF Hospitality Research

“There will be a flurry of sales to keep it at 15%” if the Democrats reclaim the White House,” said Jack Corgel, the Robert C. Baker Professor of Real Estate at Cornell University’s School of Hotel Administration.

Hennis, however, isn’t so sure capital gains will be the primary driver of hotel sales. He said it’s common at the end of the year to see a momentary spike in deals.

“I think (there are) a lot of people looking to get deals done,” he said. “They want to get it off their books and onto someone else’s.”

During Best Western International’s annual convention earlier this month, PKF Hospitality Research President Mark Woodworth said that while the fiscal cliff might cause short-term turbulence in the industry during 2013, the outlook for 2014 is positive regardless of the actions of Congress and the presidential administration.

“Uncertainty is the wild card for the next six months,” Woodworth said.

Election effect on performance
Also during the Best Western convention, PKF’s Woodworth provided results from a survey of Best Western members on whether the winner of the U.S. presidential election will make a difference as to how the hotel industry performs during 2013.

Among respondents in North America, 55% agreed that the winner of the election will influence the industry, 18% said the winner of the election will not impact the sector and 27% had no opinion. Among global Best Western respondents, 34% said the president will influence the industry, 18% disagreed and 48% had no opinion.

In the end, it might be much ado about nothing, according to STR Analytics’ Hennis.

“I’ve never heard people say they really changed their business outlook based on who the president is,” he said.