A Breakdown of the Major US Hotel Sales for Q1

Underscored by the strength of room rates, copious amounts of leisure patronage and rebounding group business, the pace of travel recovery has been robust.

As the world was emerging from a once in a century pandemic, global and national events during the first three months of 2022 have resulted in a transformative quarter unlike any for nearly 80 years.  During the nuclear superpower age, the notion of an unprovoked brutal attack and invasion of a sovereign state was the stuff of fiction. “Never again” is a phrase associated with the Holocaust, the genocide of European Jews during World War II.  Unfortunately, the phrase is merely two words as history is currently repeating itself in Eastern Europe.  

As of the end of Q1 2022, skyrocketing energy and food costs have greatly contributed to the largest surge of U.S. inflation in 40 years.  Like many industries, the hotel sector is confronted with supply chain challenges as well as unprecedented rising labor shortages and cost difficulties with no immediate solution. The past two years will be looked back upon as an inflection point influencing economic, political, and social paradigm shifts that will emerge during the remainder of this decade. 

With COVID-19 beginning to be perceived as endemic, many are optimistic that pandemic related disruptions throughout the globe will further abate.  Gross domestic product (GDP) growth is forecast to moderate in 2022 and thereafter, will continue to increase during the foreseeable future.  Strong economic growth should support a full-bodied lodging recovery.

Underscored by the strength of room rates, copious amounts of leisure patronage and rebounding group business, the pace of travel recovery has been robust. Nationally, average room rates have exceeded 2019 levels for the last six months, and most anticipate substantial growth for the balance of this year.  Hotel sector profitability, which declined dramatically during 2020, has experienced a significant rebound since Q2 2021 and many believe it will reach 2019 levels by next year.  Hotel values, which on average declined 25 percent in 2020, have for the most part returned to pre-pandemic levels.

The LWHA Q1 2022 Major U.S. Hotel Sales Survey includes 128 single asset sale transactions over $10 million which totaled $7.9 billion and included approximately 26,000 hotel rooms with an average sale price per room of $306,000.  By comparison the LWHA Q1 2021 Major U.S. Hotel Sales Survey included 31 single asset sale transactions over $10 million which totaled $8.1 billion and included approximately 17,000 hotel rooms with an average sale price per room of $477,000.  Net of the Venetian Resort Las Vegas & Sands Expo and Convention Center trade which skews the data, the Q1 2021 statistics equate to 30 trades totaling $1.85 billion, 9,900 hotel rooms with an average sale price per room of $187,000. 

By further comparison, the LWHA Q1 2020 Major U.S. Hotel Sales Survey (data reflects hotel sale price statistics prior to any impact of COVID-19 spreading across the U.S.) identified 30 transactions totaling roughly $1.97 billion including 7,600 hotel rooms with an average sale price per room of $259,000.  

Noteworthy Q2 2022 observations include:

Institutional investment platforms, many of whom are lodging centric, dominated the Q1 2022 hotel transaction arena.  

The fundamental trajectory and overall outlook for the U.S. lodging industry appears positive. While leisure destinations continue to benefit from favorable supply/demand dynamics resulting in pricing power, until corporate, group, and international travel fully re-emerge and demand for lodging re-stabilizes creating compression, many urban and suburban hotels will be challenged to benefit from strong room rate increases. Recovery in the hospitality industry is varying depending on segmentation and geography, which should be considered when analyzing national averages.  During the near term, net new supply will be tepid as some hotels permanently close and new construction slows due to supply chain issues and rapidly rising material and labor costs all of which will create financial feasibility underwriting challenges. 

With compressed return rates for other commercial real estate asset types, investment interest in U.S. hotel assets is anticipated to remain high.  Furthermore, as pandemic induced forbearance periods end, and brands re-enforce product improvement requirements, many owners will be motivated to dispose of hotel assets during a rising market.

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

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