During the months leading up to the November elections, uncertainty muted transaction activity. Since then, a renewed optimism has evolved due in part to a strengthening US economy and a rising stock market. While previously cautious institutional investors have regained resolve to consummate sale transactions, a dynamic which is becoming more common place is that owners are resisting temptation to sell assets as few good alternatives exist to reinvest capital.

As the economy goes, so does the demand for hotel accommodations. With an expectation for re-acceleration of US economic expansion, the forecast for industry wide operating metrics is for continued positive, albeit slower growth. Nationally, growth in new hotel supply is slightly exceeding demand increases. However, the negative imbalance is currently most acute in metropolitan areas experiencing double digit percentage increases in new supply as a percent of existing supply including New York City, Seattle, Nashville and Denver. The hotel business has always been and continues to be a neighborhood type business. National averages are just that, and sophisticated hotel market participants delve into analytics of defined and specific submarkets.

As greater clarity on the range of economic, tax and fiscal policy changes under the young Trump administration emerges, investor activity will likely increase. With this said, given daily leasing of units, the lodging industry always faces fragility due in part to unanticipated disruption of travel as a result of unforeseeable and/or uncontrollable events.

While during the past year US lodging transaction activity has been sluggish, generally, hotel asset pricing remains strong and per room valuations remain on an upward trajectory. Bid-ask spreads remains wide, and while rising interest rates place upward pressure on capitalization rates, compression is exerted due to an abundance of domestic and foreign capital chasing yield. Properly structured hotel investments offer a demonstrated track record of superior risk adjusted returns as well as representing terrific ventures to hedge against inflation.

NEW YORK CITY—Despite low expectations by many, the US lodging industry achieved growth in all top line operating statistics, and remarkably, every significant metric completed the year at a record level during 2016. At this juncture, a cautious outlook for the sector remains, due in part to increases in new hotel supply in major US markets, the rise of alternative accommodations and the softening of income growth and property values. However, US consumer confidence is at a 16-year high, surpassing the levels reached before the 2008 financial crisis and rivaling the heady days of the dot-com boom.

The LW Hospitality Advisors (LWHA) Q1 2017 Major US Hotel Sales Survey includes 54 single asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled roughly $3.6 billion, and included approximately 13,200 hotel rooms with an average sale price per room of $273,000. By comparison, the LWHA Q1 2016 Major US Hotel Sales Survey identified 41 transactions totaling roughly $2.6 billion including 9,400 hotel rooms with an average sale price per room of nearly $275,000. Eleven major Q1 2017 hotel sales occurred in California, followed by five in Florida, and four in Washington state. Noteworthy trades include Ashford Hospitality Prime's $1.2 million per room acquisition of the 80 unit Hotel Yountville in California and in Los Angeles, and JK Hotel Group's purchase of a remaining 80 percent stake in the 81 unit Sunset Tower Hotel at a total property basis of just under $1.5 million per room.

Recently, the Federal Reserve increased its overnight funds rate a quarter of a point to a target range of 0.75% to 1.00%. The decision to increase rates was prompted by encouraging market indicators that the prolonged slowdown may be drawing to an end. Furthermore, the maneuver is anticipated to be the launching into what is expected to be a more rapid series of increases that are intended to ward off inflation but will also raise consumer and commercial borrowing costs. Regardless of the increase, interest rates still remain historically low and provide opportunities to lock in long-term, accretive financing. Finally, the increase is a sign of confidence relative to economic expansion, in particular job and wage growth all of which are positive for commercial real estate and specifically lodging.

During the months leading up to the November elections, uncertainty muted transaction activity. Since then, a renewed optimism has evolved due in part to a strengthening US economy and a rising stock market. While previously cautious institutional investors have regained resolve to consummate sale transactions, a dynamic which is becoming more common place is that owners are resisting temptation to sell assets as few good alternatives exist to reinvest capital.

As the economy goes, so does the demand for hotel accommodations. With an expectation for re-acceleration of US economic expansion, the forecast for industry wide operating metrics is for continued positive, albeit slower growth. Nationally, growth in new hotel supply is slightly exceeding demand increases. However, the negative imbalance is currently most acute in metropolitan areas experiencing double digit percentage increases in new supply as a percent of existing supply including New York City, Seattle, Nashville and Denver. The hotel business has always been and continues to be a neighborhood type business. National averages are just that, and sophisticated hotel market participants delve into analytics of defined and specific submarkets.

As greater clarity on the range of economic, tax and fiscal policy changes under the young Trump administration emerges, investor activity will likely increase. With this said, given daily leasing of units, the lodging industry always faces fragility due in part to unanticipated disruption of travel as a result of unforeseeable and/or uncontrollable events.

While during the past year US lodging transaction activity has been sluggish, generally, hotel asset pricing remains strong and per room valuations remain on an upward trajectory. Bid-ask spreads remains wide, and while rising interest rates place upward pressure on capitalization rates, compression is exerted due to an abundance of domestic and foreign capital chasing yield. Properly structured hotel investments offer a demonstrated track record of superior risk adjusted returns as well as representing terrific ventures to hedge against inflation.