Here are the Major US Hotel Sales in the Second Quarter

The survey includes 133 single asset sale transactions that totaled roughly $5.3 billion and included approximately 21,200 hotel rooms with an average sale price per room of $248,000.

With the first half of the year now in the books, 2022 has thus far provided an unexpected and tumultuous ride. It was only six months ago when the S&P 500 reached all-time highs in a world where lingering supply chain pressures and potential COVID outbreaks seemed to be the two most pressing risks to economies across the globe. While those two dangers are abating, a refreshed slate of macro-overhangs may be more daunting than ever. Included are the ongoing war in Ukraine, rising interest rates and soaring levels of inflation. 

Although the U.S. is not technically in an economic recession yet, many feel angst due to effects of a decline in activity coupled with rapid increases in prices, resulting in an erosion of consumer purchasing power. On the other hand, the bull case against a recession is well-anchored by a labor market at near historical low unemployment rates. The U.S. Federal Reserve (Fed) has clearly telegraphed a commitment to curbing inflation, and while the central bank may be agnostic to declining prices of equities, a faltering jobs market may be the domino that leads the Fed to blink. Although weekly jobless claims have yet to raise any cause for alarm as of late, increasing numbers of businesses have announced plans to slow hiring or make headcount reductions including several of the major tech companies such as Google, Apple, and Meta. 

Recently many U.S. commercial real estate markets and/or assets have begun to experience a downward shift in values, as numerous buyers have paused due to soaring costs resulting in businesses re-examining expansion plans.  Further dampening of demand has been caused by interest rate spikes, which feed through into higher costs for financing. Within the lodging sector, a continued imbalance of hotel assets for sale and demand for investment opportunities has in many cases resulted in competitive deal pricing, and a dampening of anticipated equity returns. In fact, some investors now perceive enhanced risk/return prospects in subordinate and/or mezzanine debt compared with equity opportunities.

The LWHA Q2 2022 Major U.S. Hotel Sales Survey includes 133 single asset sale transactions over $10 million which totaled roughly $5.3 billion and included approximately 21,200 hotel rooms with an average sale price per room of $248,000.  By comparison the LWHA Q2 2021 Major U.S. Hotel Sales Survey included 60 single asset sale transactions over $10 million which totaled $4.7 billion and included approximately 14,000 hotel rooms with an average sale price per room of $331,000.  

By further comparison, the LWHA Q2 2019 (pre-pandemic) 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.  

Contrasting the first half of 2022 with the same time frame 2021, the LWHA Major U.S. Hotel Sales Survey indicated a nearly threefold increase in the number of sale transactions, a doubling of total dollar volume, and an increase of roughly 2 percent in sale price per room. 

Noteworthy Q2 2022 observations include:

Institutional investment platforms, many of whom are lodging centric, dominated the Q2 2022 hotel transaction arena.  

Recovery of the U.S. lodging industry continues to be uneven as drive to leisure-oriented markets are generally faring well, while many downtown urban markets continue to face challenges. Reduced staffing levels resulting from labor shortages has generally led to favorable increases in sector profitability. Due to the pandemic’s outsized impact on travel recent hotel industry fundamentals have decoupled from historical correlations to metrics such as gross domestic product, corporate profitability, and consumer confidence, and has thus far bucked the trend of souring macroeconomic headlines.  With this said, negative data points are becoming difficult to ignore. Near-term fundamental trends remain strong as the busy summer travel season is in full swing, and the lodging industry is benefiting from the buildup of consumer savings during the pandemic, and the release of pent-up demand including a return of inbound international travelers. Although business travel is returning with significant improvement in midweek hotel demand, the sector is focused on a potential slowing of demand and pricing as leisure travel wanes during the Fall back to school season. During the latter half of the year, continued airline disruptions which enhance the hassle of travel, combined with rising prices, will place negative pressure on hotel room night demand and pricing.

Labor shortages and supply chain disruptions are creating challenges for much needed renovations of existing hotels, many of which were the beneficiary of relaxed brand standards during the pandemic, however, now are being reinforced. Labor shortages and supply chain disruptions are also causing delays in openings of new hotels under development.  Both challenges which fuel rising capital expenditure and/or construction costs, have lengthened development timelines, and coupled with rising interest rates and a continued dearth of construction financing are diminishing economic feasibility of numerous proposed hotels.  

Geopolitical volatility, economic recessionary pressures resulting in rapidly rising expense costs, and capital expenditure requirements are all contributing to unclear growth assumptions resulting in enhanced underwriting risk for investors. With this said, enormous sums of capital raised for anticipated pandemic induced distress and bankruptcies that for the most part did not materialize is under pressure to be deployed as sidelined cash loses value every day during an inflationary environment. Traveling continues to evolve as a worldwide phenomenon, and continuous repricing of hotel room nights positions the lodging industry as a highly desirable target for sophisticated opportunistic investors. The hotel business is demonstrably resilient as evidenced by strong recoveries after prior downturns including the September 11 attacks and the Great Recession. The lodging industry’s post pandemic rebound has thus far exceeded expectations and will likely result in the most robust bounce back ever. 

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

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