US Lodging Industry Q1 2010: Point of Inflection

NEW YORK CITY-The recent bottoming of lodging operating metrics, coupled with a flurry of transaction activity suggests that Q1 2010 may have been an inflection point for the U.S. hotel sector. Long anticipated “green shoots” are now slowly appearing.

Pricing spreads between buyers and sellers are narrowing. Simultaneously, the inventory of attractive opportunities remains fairly constrained given the reluctance of lenders and others who control assets to dispose of them at today’s depressed pricing levels. Savvy, well capitalized investment groups, with lodging industry expertise, have raised pools of funds for opportunities where the risk-reward profile has the potential to provide significant earnings and capital appreciation. It is anticipated that there will be desirable investment opportunities at all levels of the hotel capital stack. Such prospects include: origination of a myriad of lodging real estate loans, the acquisition of performing and non performing hotel loans, structured mezzanine positions, and direct investment in individual assets and portfolios of hotel real estate. Similar to the rebound from prior downturns, investors are seeking opportunities to inject capital in addition to acquisition costs, and to turnaround, reposition and/or rebrand distressed hotel assets with the goal of achieving maximum capital appreciation and, to a lesser extent, current income.

The CB Richard Ellis (CBRE) Valuation & Advisory Services Hospitality & Gaming Group continuously monitors the major U.S. hotel sale transaction market. In Q1 2010, the CBRE Major U.S. Hotel Sales Survey, which looks at single lodging asset sales over $10 million each that are not part of a portfolio allocation, identified 14 transactions. These transactions total $710 million, and include 5,000 hotel rooms with an average sale price per room of $140,000. By comparison, the Q1 2009 survey was never published due to the dearth of transactions.