Several noteworthy transactions underscore that 2009 was a point of inflection for the US lodging industry investment market:

• The $37-million acquisition of the failed condo-hotel, Hotel 71 in Chicago. The $85,000 per room trade represents more than a 60% decline from the asset’s acquisition cost of $220,000 per unit four years ago. The concept of a well-located high rise urban hotel in a major American city trading in 2009 for less than $100,000 per room is astonishing;
• Subsequent to an unsuccessful attempt to restructure its $65 million securitized debt on the W San Diego, Sunstone Hotel Investors--who acquired the asset during 2006--determined that its $96-million investment in the deal was permanently impaired, and elected to forfeit the property to its lenders. While forfeitures and foreclosures of US hotels are becoming more common during this downturn, Sunstone’s bold move clearly raised eyebrows. While the company maintained that it had sufficient liquidity to support or repay the non recourse mortgage, the public company’s management believed it was in the best interest of shareholders to surrender ownership control of the hotel;
• Istithmar World Capital, Dubai World's private-equity arm, experienced a $50-million equity loss when it defaulted on more than $200 million in debt on the 270 room W Hotel Union Square in Manhattan. Dubai’s 2006 acquisition of the asset at more than $1 million per room represented a "high water mark" for a 100% fee interest of an inner-city US hotel property;

Additional notable observations from the CB Richard Ellis 2009 Major US Hotel Sales survey include:

• The number of major 2009 US hotel sale transactions declined by more than half of 2008’s levels, and activity was 70% lower when compared to 2007;
• Excluding the Treasure Island Hotel & Casino Las Vegas transaction, the average sized 2009 deal was $41 million, roughly equivalent when compared with 2008 but a decline of 45% from the $73 million per transaction average during 2007;
• The 2009 average sale price per room increased 13% over 2008, but remained 12% lower than 2007;
• Only five major US hotel sale transactions greater than $100 million took place during 2009--the same number as in 2008--and far less than the 20 such deals in 2007;
• Only one major US hotel traded for more than $500,000 per room during 2009, a decline from the two transactions that occurred during 2008, and far less than the 13 deals at that level which occurred in 2007;
• Apple REITS, a series of public non-listed REITS focused on the ownership of upscale, extended-stay and select-service hotels, and HEI Hotels & Resorts Fund III, a $500-million discretionary private equity fund formed to acquire and/or develop hospitality related assets, each facilitated two major US hotel acquisitions during the year;
• Host Hotels & Resorts was the most active seller of major US hotel assets with five dispositions during 2009.
• As the availability of distressed investment opportunities are expected to dramatically accelerate, an extraordinary amount of public and private capital has been raised and earmarked for investment in the US lodging sector. Sophisticated hotel centric investors are pursing the acquisition of distressed hotel debt and/or fee simple real estate at fractions of replacement cost. Cash is clearly king and those that can acquire assets without leverage today can expect to boost their returns by placing debt on these properties within the next several years. While US hotel property values have dramatically declined from their 2007 peak level, upward pressure on pricing is anticipated to occur as desirable assets become bid up by the large numbers of qualified investors. In addition, because of the ability of hotel assets to continuously change room rates, many who believe an inflationary environment is on the horizon, perceive hotels as appealing investments that represent a hedge against higher prices.

  Finally, lodging investors who can take advantage of dramatically lower construction, labor, and material costs are seizing upon the current low occupancy environment to upgrade, renovate, and/or reposition hotel assets for the ultimate rebound in the US lodging industry. Well conceived and structured US hotel deals that are executed in the near term will be looked back upon five to seven years from now as nothing short of brilliant.

Daniel Lesser is the senior managing director of the Hospitality & Gaming Group at CB Richard Ellis (CBRE) based in New York City. The views and opinions expressed in this article are the author's own.