By mid-year, US hotel transaction volume reached "an unprecedented" $21.8 billion, exceeding $21 billion for all of 2005. Compared to the first six months of previous years, this year's volume represents a 160% increase over the same period in 2005 and a 200% hike over the first six months of 2004. Full-year 2006 volume is expected to exceed $30 billion.
"Pre-emptive bids, hard money offers, first-time investors, and yield-probing equity" are the drivers of this surge, according to Paider. The JLL hotel unit tracks transactions of $10 million and above. Within that arena, 135 transactions closed in this year's first six months, and the average price per key was $154,125. According to Michael Corbett, president of locally based GVA Worldwide, his company's hospitality team has closed hotel sales and financings valued at nearly $243 million since the beginning of this year.
Hospitality market fundamentals continue to strengthen, according to JLL Hotel's research. Overall occupancy reached 63.5% during the first half, a 2.1% increase from the year before. RevPAR hit an average of $61.30, for a 9% gain. Demand expanded 2.4%, driven both by baby boomers in the leisure segment and increased corporate travel. Meanwhile, construction costs are limiting new supply.
As in 2005, private equity firms dominated the hotel-buying arena and accounted for 46% of the first-half acquisitions. "They tend to be more opportunistic than leveraged public entities," Paider says, "and typically focus their investment criteria on undervalued or under performing opportunities with prospects for significant value growth." She expects this group of investors to continue to drive hotel transaction volume. In all, the factors that have been in play "will continue to propel existing product into the pipeline through the first part of next year," she predicts.
Two trends within the climate of increased hotel acquisitions also continue unabated, according to Paider. They are conversion of traditional hotels to condo hotels and conversion to mixed-use in which part of an asset remains a hotel while part is converted to residential condos. Of the former, she says, "in some cases, it's a way to heighten the multiple of the investment quickly." The latter "represents another avenue investors explore for the same purpose."
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