• By all measures, US hotel sale transaction activity during 2010 exceeded deals which occurred during 2009;

• Fourteen major US hotel sale transactions greater than $100 million occurred during 2010, compared with only five which were consummated during each of the past two prior calendar years;
• Public companies dominate the acquisition landscape, and private equity groups that are exclusively focused on the sector are also actively deploying capital to acquire US lodging assets;
• The most sought after hotel investment markets are located on both US coasts. Metropolitan areas such as New York City; Washington, DC; and San Francisco represent 24/7 markets with diverse hotel demand generators and high barriers to entry for new product;
• Two 1,000 plus room US hotels traded during the year;
• The sale of the Milford Plaza in New York City is notable, as the older very prominent asset is as ripe as one can get for a complete redevelopment value enhancement play in one of the world’s top hotel markets; New York City is fundamentally an under-hoteled market and opportunities such as this deal are quite rare;
• On a relative basis, US hotels appear inexpensive when compared with several recent trades in Europe: |
  • Starwood Capital recently announced it is selling the 147 room Hotel Crillon in Paris to Saudi investors for roughly $353 million with a plan to spend an additional $140 million in renovations for a total basis of almost $3.4 million per room;
  • London’s Grosvenor House is being sold by Royal Bank of Scotland for $757 million or roughly $1.5 million per room.

A rebounding albeit tepid economic recovery is driving the current rebound of operating metrics of the US lodging industry. The hotel business is a highly leveraged business in that as revenues increase, profits tend to rise exponentially. The US lodging industry has so far experienced a demand-driven recovery, with pricing power yet to develop, but very much expected to occur in the very near future as occupancy levels rise. A prolonged paucity of construction financing has created a muted new hotel supply outlook for the next five years. The combination of these factors is driving current investor interest in the sector with a remarkable amount of raised equity aimed at the US hotel sector. Credit markets are quickly loosening up and a variety of hotel lending sources are emerging. US hotel transaction activity is clearly gaining traction, and with the “Up” cycle having clearly begun, many see epic appreciation potential during the next several years.