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Despite Growth, Lodging Turns Cautious

The US lodging market has experienced its 72nd consecutive month of positive albeit decelerating growth in revenue per available room (RevPAR). Modest…

By Daniel Lesser | daniellesser | Updated on April 12, 2016

LW Hospitality Advisors US Major Sales Q1 2016 LW Hospitality Advisors US Major Sales Q1 2016

The US lodging market has experienced its 72nd consecutive month of positive albeit decelerating growth in revenue per available room (RevPAR). Modest US job and wage growth as well as strong consumer spending endure, however, during the past several months, fear of a global economic downturn coupled with investor perception that the lodging industry has peaked has for now rendered the sector a dimming star. Hotel investment sales and financings are taking longer to complete as apprehension about achievable debt levels has widened mortgage spreads and lender underwriting has become increasingly rigorous. Additional uncertainty is being fueled by a strong US Dollar exchange rate in comparison to foreign currencies and the growth of home sharing companies such as Airbnb.

Deal pace this year has dramatically slowed as buyers and sellers assess the changing outlook and capital market gyrations.  Hotel property values in privately negotiated sales remain stronger than public market values, and many owners have attempted to take advantage of the gap in order to realize gains from seasoned investments. Private equity firms along with REITs, pension funds, and sovereign wealth funds are seeking to sell holdings while simultaneously pursuing new acquisitions. Public REITs are taking advantage of the arbitrage in pricing between the public and private markets to sell assets and use proceeds to buy back stock. As the market experiences a slow shift in leverage from sellers to buyers, prospective investors are taking more time to analyze deal opportunities than they did one year ago with many adopting a “wait and see” approach as the market transitions.

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