UNITED STATES The average selling price per guestroom in the United States increased an astonishing 86% year over year in 2010 and was 9% off the all-time high, recorded in 2007.
For the 477 U.S. hotels sold in 2010 that reported sale prices, the average rose to US$108,199 per key, compared to just US$58,301 in 2009, according to Lodging Econometrics. In 2007, the average price peaked at US$$119,420 per key. Selling prices will continue to increase going forward, but at a more modest pace, as a broader mix of hotel types should soon begin to come to market and as interest rates creep up.
A total of 1,298 U.S. hotels were sold or transferred in 2010, more than double the 513 transactions in 2009, according to Lodging Econometrics. Individual and portfolio transactions increased 19% year over year from 513 to 608 hotels. An additional 690 hotels were transferred in two separate mergers. Transaction volume is poised to increase over the next three years, with Wall Street banking activity accelerating and a large flow of existing real estate loans coming due. Many of these assets will be distressed, presenting attractive investment opportunities for those able to access funds.
In 2010, many select-service hotels sold at or near the selling price highs recorded from 2006 to 2008. A number also sold at or exceeded their estimated cost of replacement. Among the brands in such high demand were: Residence Inn, Courtyard by Marriott, SpringHill Suites, Hilton Garden Inn, Homewood Suites and Hampton Inn & Suites.
The rapid recovery of investment banking contributed to the strong rebound in selling prices. New REITs were formed and were able to access both equity and debt. Older REITs, publicly traded hotel companies and private equity groups were also able to secure corporate debt at record low interest rates. With so many well-funded investor groups chasing too few investment opportunities, prices were bid higher than usual, as these investors were highly motivated to enter the market as early as possible in the new cycle.
Total U.S. industry investment flows reached an estimated US$13.5 billion in 2010, the highest since 2007. Of that total, US$7.2 billion was from the 477 hotels that reported a selling price—a 270% increase from US$2.7 billion in 2009. An estimated US$2.1 billion was for all other fee-simple transactions, while US$4.2 billion was attributed to two mergers.
For the 477 U.S. transactions with a reported selling price, REITs accounted for 40% of total investment dollars, at US$2.8 billion for the year, up US$2.6 billion from 2009, when they invested just US$197 million. These publicly traded entities mainly targeted high-quality individual assets, and often were able to pay premium prices because their equity return requirements are generally lower than privately held companies.