Hotel Deal Pace ‘Going Strong’
U.S. hotel transaction volumes approached $12 billion through April, up 93 percent compared to the same time last year, reported JLL, Chicago.
The “exceptional” transaction activity is underpinned by accelerating performance growth, said JLL Hotels Chairman Arthur Adler. Cap rates compressed further due to several high-profile assets changing hands and ongoing strong investor sentiment.
“Going into this year, we were hopeful that the improving economy and strong employment trends would translate to an acceleration in revenue per available room,” Adler said. “Since March, that is exactly what has happened. Investor sentiment has markedly improved based on the widely held belief that demand will outstrip supply for the foreseeable future, resulting in stronger pricing power and solid profit improvement.”
Last year, transaction volume fell nearly 15 percent compared to 2016, but this year the sector is “flooded” with available capital for acquisitions “from public and private real estate investment trusts, private investors, family offices and offshore investors,” JLL said.
Only two things have slowed hotel deal volume down this year, the report said: the lack of property coming to market and the option to finance–currently, many owners are opting to refinance rather than sell.
“The acceleration of GDP and RevPAR marks a key turning point for investors, who are now convinced that this will be an extended cycle,” Adler said. “Recent earnings calls have been resoundingly positive [and] investors are now firmly in the camp that this will be an elongated cycle, therefore, they are positively predisposed to investing in lodging compared to other forms of real estate.”
The 52-week moving average for hotel occupancy reached 66.4 percent, the highest level seen in the past decade, JLL said. In general, hotels at either end of the price spectrum, luxury hotels and economy hotels, are seeing higher performance growth rates than mid-range full-service hotels.
The average transaction size has increased, JLL noted. A four-fold surge in portfolio transaction volume supported total hotel transaction activity in the first four months of 2018. Notable portfolio transactions included Hyatt Hotels’ $1 billion disposition of three luxury assets across the U.S., Junson Capital’s purchase of a multi-property portfolio and Brookfield Asset Management’s acquisition of more than 100 company-owned hotels from WoodSpring Suites LLC.
“Overall, we will continue to see owners who are holding assets seek to refinance and reinvest in their properties. Investors will increasingly gravitate towards lodging given the extremely favorable risk-adjusted returns that the sector offers relative to other forms of real estate,” Adler said.
