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Trade activity of U.S. lodging assets declined dramatically during this past Q3 2011 as illustrated on the following table:

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It is interesting to note that during Q3 2011, in addition to a dramatic decline in total number of trades and total dollar volume of major sales, the average size deal was more than 50 percent below prior quarters of the year. Furthermore, the average price per room sold in Q3 2011 was significantly below prior quarters of the year.

Other notable observations from the 17 major deals included in the LWHA Q3 2011 Major U.S. Hotel survey are as follows:

• Thirteen transactions or more than 75 percent, included assets located on both U.S. coasts and Hawaii;

• Six transactions or more than one third, included assets located in California, and

• The Hyatt on Capitol Square in Columbus, Ohio traded for 35 percent or $10.5 million lower than what it previously sold for during 2007.

Several previously announced noteworthy U.S. hotel sale transactions that were slated to close during Q3 2011 have yet to be effectuated including:

• Host Hotels & Resorts $442 million acquisition of the Grand Hyatt in Washington DC;

• LaSalle Hotel Properties $405.5 million purchase of the Park Central in New York;

• Chatham Lodging Trust’s $24.9 million acquisition of the Residence Inn Pittsburgh University Medical Center.

Several previously announced noteworthy U.S. hotel sale transactions have reportedly been terminated during Q3 2011 including:

• Host Hotels & Resorts contract to acquire the St. Regis Monarch Beach in Dana Point, CA

• Cerberus Capital Management and Chatham Lodging Trust in August abandoned a $1.12 billion deal to buy Innkeepers USA Trust which includes 64 hotel assets

Despite a sluggish economy, U.S. lodging industry fundamentals continue to be fairly strong. Given a myriad of global and domestic issues, the verdict on short term future industry performance is far from clear. Any downturn in U.S. hotel metrics that may occur will be moderated by limited new hotel development. Share prices of publicly traded hotel focused REIT’s do not currently justify acquisition activity, and they are effectively now out of the market. Large sums of raised private capital funds, and overseas investors from throughout the globe are now better positioned to deploy capital into hard U.S. assets including hotel investments, which have traditionally offered superior risk adjusted returns. The world is awash with liquidity, which to some extent will back fill the void left by REITS who until recently were flush with cash and extremely acquisitive. The United States has always been, and will always be the safest place on the planet to invest. Furthermore, urban 24/7 markets such as New York, Boston, Washington DC, and San Francisco are highly sought after as many hotel assets trade at below replacement cost. Finally, when one considers the recent trade of the W London – Leicester Square at roughly $1.6 million per room, U.S. inner city hotels appear relatively inexpensive.

Daniel H. Lesser is president & CEO of New York City-based LW Hospitality Advisors LLC. He may be reached at [email protected]. Opinions expressed in this article are the author's own.