Average U.S. hotel transaction value jumps 86% this year

UNITED STATES The average selling price per guestroom in the United States accelerated 86% to US$107,988 for the first nine months of 2010, compared to the 2009 year-end total of US$58,190, according to Lodging Econometrics data.

Average price has dropped a dramatic 51% from the peak of US$119,55 per guestroom in 2007 to the cyclical low established last year. The volume of transactions reporting a selling price for these year-over-year periods has held essentially constant, with 335 in 2010 and 328 in 2009.

Escalating selling prices are a result of a large flow of prime properties being pulled into the market by a number of newly formed REITs with fresh equity and debt capital, and older REITs and equity funds that are able to source corporate debt at historically low rates, Lodging Econometrics says. The institutional-type hotels these capital-rich investors are able to attract are generally concentrated in top 25 markets and are either newly constructed in the last decade or classic high-end hotels.

For the first nine months of the year, investment into the industry more than doubled compared to 2009. Total investment surged to US$4.8 billion, up from US$2 billion in 2009. Acting as buyers, REITs are the largest investor group at US$1.9 billion—a 10-fold increase over 2009. Private equity groups follow with US$1.3 billion, three times greater than in 2009.

The significant sellers are privately held hotel companies and individual owners who divested a combined US$2.8 billion in hotel real estate. Most hotels have not been publicly offered to the market for sale, but are considered “off-market” transactions. Many necessitate the participation of the seller’s lending group to assist with the devaluation of the asset as a requirement to close with the new investors. As the economy recovers and hotel operations continue to improve, investment flows should further accelerate as one real estate cycle ends and another begins, Lodging Econometrics says.

A total of 466 hotel transactions and property transfers have taken place year to date, up by 61 transfers over the same period in 2009. From the 2007 peak to the 2009 bottom total, transaction and transfer activity declined 86%. Thus far in 2010, activity is holding essentially flat with last year. Individual transactions, at 377, are down slightly. Some 62 hotels were part of a portfolio sale, while 27 hotels were transferred due to a corporate merger even; both are marginal increases over 2009.

However, while volume is the same, there has been a major shift in the type of properties transacted. Of the 335 transactions that reported selling prices in 2010, 130 are in top 25 markets, a 49-unit increase over 2009. Five U.S. markets have proven most attractive: Boston, New York City, Orlando, Phoenix and Washington.