Best outlook and yields found in resorts

The resort segment of our sector is on fire. Demand from consumers and investors is outstripping supply. The confluence of strong operating fundamentals coupled with highly liquid capital markets is driving record pricing. Incredible transactions are seemingly announced at a pace not seen in my now 40-plus years in the business. Let’s explore.

Contributed by Kevin Mallory, global head, CBRE Hotels

We have never experienced a global market shock to the sector that compares to the COVID-19 pandemic. It’s worth remembering one fundamental concept; the shock was demand-driven as opposed to being economic in nature. The world’s capital infrastructure, while experiencing volatility, maintained its integrity and its thirst for opportunity.

Real estate fund manager Alcion Ventures in November 2021 sold the 85-room Four Seasons hotel in Napa Valley’s Calistoga, California, for US$175 million (more than US$2 million per key) to Sunstone Hotel Investors.

Early, we experienced capital formation around distress. Every day it seemed we were approached by new capital seeking opportunities. Capital was not the issue; we lacked investment supply. No owner wants to sell their investment at distress pricing. Enter government subsidies that played a major role in allowing many owners to maintain their investments.

As we made our way deeper into the pandemic, demand for investment product did not dissipate, and consumer demand started to manifest with clear trends. Resorts were one of two primary segments to benefit from these early trends. The resorts that did best had obvious characteristics: easy to drive to, sun belt locations, newer, and luxury positioning.

The most successful had the ability to pivot distribution channels away from group and business and focus entirely on leisure (and ‘bleisure’). The consumer, flush with pent up savings and a desire to get out, became a force that quickly outgrew the segment’s ability to satisfy demand – first on weekends and then throughout the week as bleisure and remote working became status quo.

Operating fundamentals

Led by the recovery in leisure, resorts in the United State early on – and with a J-curve trajectory – led the way in sector fundamentals. Miami, Virginia Beach, Southern Florida, Orlando, Napa, Charleston, Savannah, and even more remote locations in Colorado, Wyoming, and the Great Lakes became regional and then national destinations.

Based on data we collect, resorts have outperformed 2019 levels in both revenue and profitability. Revenue was driven by ADR growth that soared 43% over pre-pandemic levels, while occupancy remained below prior peaks. Our database indicates resort revenue and profits ended 2021 at 102% and 108% of 2019 levels, respectively.

Capital markets

There is nothing that the capital markets like better than a positive outlook. This, coupled with capital supply (both debt and equity) that could not be satisfied, and was/is yield starved, drove interest in the sector and the resort segment to new highs.

As we and our peers brought the right product to market, we experienced high bid depths from both debt and equity. On one asset alone, we received over US$8 billion in qualified bids – yes, you read that right.

“The thirst from the capital markets allowed us to drive deep competition often going to multiple bidding rounds. Simply put – the leverage pendulum had clearly swung heavy for the benefit of the seller.” – Kevin Mallory

On the debt side, almost 90% of our transactions occurred with different lenders. The thirst from the capital markets allowed us to drive deep competition often going to multiple bidding rounds. Simply put – the leverage pendulum had clearly swung heavy for the benefit of the seller.


Not all resorts are created equal, however. Capital likes big, newer drive-to, and sunbelt/coastal properties. Add Napa, California, and top ski destinations, as well.

Today, top properties are trading north of US$1 million and US$2 million per unit with some regularity. Transactions over US$300 million are common. Transactions over US$500 million do not surprise.

Entry yields are low and sub-5% is not unusual with stabilized yields perhaps making their way toward 6% to 7.5%.