High Interest in Buying/Developing Hotels; Less in Selling Them

Investors show significant interest in buying and building hotels as the sector continues to thrive, reported Lodging Econometrics and the North American Tourism and Hospitality Investment Conference.

“With the outlook projected to remain positive for the hotel industry at least through 2017 and continued historically low interest rates, hotels continue to attract a great deal of interest from investors, especially giving the recent volatility of the capital markets,” said Alexi Khajavi, executive vice president with Questex Hospitality Group, Newton, Mass.

PKF Hospitality Research, Atlanta, predicted a 6.8 percent increase in revenue per available room should lead to a 6.6 percent gain in hotel revenue next year. Hotel operating expenses should rise by just 3.8 percent in 2016, the firm said.

Lodging Econometrics and NATHIC said nearly half of the conference attendees surveyed opened one hotel in the past 12 months and 30 percent opened two or more. Nearly one-quarter of those surveyed possess $50 million in equity for new construction investments and one-fifth have $200 million or more to leverage for hospitality investments. 

“Although the survey group was targeted to owners/investors, we were somewhat surprised by the aggressive appetite of the respondents,” Khajavi said.

Two Texas cities dominated hotel developers’ interest. More than 15 percent preferred Austin and 13.8 percent expressed interest in Dallas. Other cities favored by builders include Los Angeles with 9.6 percent, New York with 9.3 percent and Tampa, 9.3 percent.

Buyers showed similarly optimistic outlooks; 38 percent of buyer respondents purchased a hotel in the previous 12 months and roughly half of them–19.4 percent–purchased two to four properties. Respondents showed the most interest in purchasing assets in the Chicago metro area (29 percent), and seven other markets including Los Angeles, San Diego, New York and San Francisco were favored by at least 20 percent of respondents.

But hotel owners expressed much less desire to sell; no market exceeded 10 percent and only three markets, Dallas, Orlando and Austin, exceeded five percent. Interested buyers exceeded potential sellers four to one, Lodging Econometrics and NATHIC said.