Where Hotel Sales Are In Q2

Demand drivers are anticipated to change during the second half of this year as post Labor Day corporate travel should increase, and with schools reopening leisure travel will slow down.

The U.S. Lodging Industry has shifted dramatically over the past twelve months. Looking back to this time last year, the world was fiercely battling the Coronavirus pandemic, virtually weaponless without anything other than masks and social distancing measures. We are now roughly six months into the global vaccination campaign, with cases and death rates much lower in most parts of the world. Although the U.S. has achieved months of steadily declining case counts, unfortunately, every day we are reminded that the fight against the pandemic is not over. COVID-19 continues to loom large as new, more transmissible variants, and ongoing virus outbreaks in places like Australia, India, South Korea, and the continent of Africa highlight that the world remains vulnerable to the pandemic. Additionally, according to the Centers for Disease Control and Prevention, 47.9%, less than half of all Americans are fully vaccinated.

 The recent swift U.S. economic recovery is unlike any in recent history. The COVID-19 recession was not caused by monetary factors, rather it has been a disruption akin to an unanticipated natural disaster which typically temporarily interrupts economic activity while leaving intact the underlying demand and supply of goods and services. When a catastrophic event sunsets’, the subject market areas economy tends to recover faster, as compared with a classic financial recession.

Currently in the U.S., startup businesses are launching at the fastest pace ever, household debt-service burdens in relation to after-tax income are at the lowest levels in decades, home prices are surging, and The Dow Jones Industrial Average has risen nearly 18 percent from its pre-pandemic peak in February 2020. Widespread vaccination during the first half of 2021, and over two trillion dollars in additional personal savings throughout the last year have provided American consumers the means to spend; specifically on discretionary items such as travel.  This is all good news.

The bad news is that the speed of the current economic rebound is also triggering turmoil as high demand coupled with widespread shortages of raw materials, commodities, and labor along with supply chain challenges are driving up the cost of consumer goods and services.  Many anticipate the recent relative rapid rise of inflation to be temporary, while many others are concerned that brisk price increases will endure for several years.

Generally, the commercial real estate market in the U.S. is flourishing as asset values declined far less than during the Great Recession and have already reversed course into a recovery. In addition to federal government support of the economy, thus far lenders have been flexible with forbearance terms and avoided widespread foreclosures.

The recovery in the U.S. hotel industry until now has been largely driven by leisure demand as lodging facilities that serve vacationers, weekend travelers and day trippers are performing very strongly and, in some cases, charging higher average daily rates and filling more rooms than prior to the pandemic. Demand drivers are anticipated to change during the second half of this year as post Labor Day corporate travel should increase, and with schools reopening leisure travel will slow down.  Furthermore, the predicted death of urban centers is proving to be greatly exaggerated as the pendulum of outbound flight from 24/7 urban cores is swinging back.   The availability of a vaccine has made city workers and dwellers less fearful of infection and anxiety to be in crowded environs.

The U.S. lodging industry is reemerging with dramatic transformations that may permanently alter the sectors pre-pandemic business model and create higher margin businesses. Owners and operators are touting potential savings and increased efficiency from reduced hotel workforce labor and costs on services such as housekeeping, food, and beverage. Similar to the airline’s ala carte approach, the hotel industry is attempting to move guests toward an opt-in choice for various services, such as daily room cleaning.

The LW Hospitality Advisors (LWHA) Q2 2021 Major U.S. Hotel Sales Survey includes 60 single asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled roughly $4.66 billion and included approximately 14,000 hotel rooms with an average sale price per room of roughly $331,000. By comparison, the LWHA Q2 2020 Major U.S. Hotel Sales Survey identified 6 single asset sale transactions totaling roughly $246 million and included approximately 1,500 hotel rooms with an average sale price per room of roughly $169,000. Comparing Q2 2021 with Q2 2020, the number of trades increased tenfold while total dollar volume increased nineteen-fold and sales price per room nearly doubled. By further comparison, the LWHA Q2 2019 Major U.S. Hotel Sales Survey identified 35 transactions totaling roughly $2.6 billion including 9,100 hotel rooms with an average sale price per room of $286,000.  Comparing Q2 2021 with Q2 2019, the number of trades increased by approximately 71 percent while total dollar volume grew roughly 79 percent and sales price per room rose by 16 percent.

Noteworthy Q2 2021 observations include:

As the U.S. hotel industry continues to emerge from the carnage induced by the global pandemic, an abundance of capital is beginning to fuel increasing activity with lodging sector mergers, acquisitions, and spinoffs.  Significant Q2 2021 transactions include: 

Institutional investment entities that have been recent active investors of U.S. lodging assets include: 

Additional commentary on the U.S. hotel market based upon my observations: 

Risks for the U.S. hotel industry include:

Positives for the U.S. hotel industry include:

Daniel H. Lesser is president & CEO of LW Hospitality Advisors LLC

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