The U.S. economy has managed to show resilience and a healthy employment report: there has been stronger-than-expected wage growth in June and robust consumer spending. However, the Federal Reserve’s “aggressive drive to tame inflation” has slowed the economy, the latest LWHA report said. There has also been stress in the country’s banking system, and financial market volatility has slowed commercial real estate lending activity.
According to the Q2 2023 Major U.S. Hotel Sales Survey by LW Hospitality Advisors, the American hotel industry has been a defensive sector, showing strength and the ability to withstand economic difficulties. Strong leisure demand and the return of group and corporate demand have driven growth in ADR, which has outperformed the rise of overall inflation in the U.S.
The report includes 84 single sale transactions of over $10 million, totaling around $3.1 billion, and included 12,100 hotel rooms with an average sale price per room of $257,000.
In the Q1 2023 report, the report mentioned 83 single sale transactions over $10 million, totaling around $3.5 billion and included 12,500 rooms with an average sale price per room of $279,000. The number of trades saw a slight decline (by 1%), while the total dollar volume fell by nearly 11% and the sale price slipped by around 8.5%.
The Q2 2022 survey included 133 single sale deals worth more than $10 million, totaling roughly $5.3 billion, and included 21,200 rooms with an average sale price per room of $248,000. When comparing Q2 2023 with Q2 2022, the number of trades saw a 37% decline, while total dollar volume fell by 41%. However, the sale price per room increased marginally by 3.4%.
Compared to the first half of 2023 with the same time in 2022, the survey mentioned a 36% fall in the number of sale transactions, and a 50% decline in total dollar volume, while the sale price per room fell by 4%.
According to the survey, the relatively inflated cost of debt has increased bid/ask spreads and weakened investment volume.
Some of the significant transactions made in Q2 2023 were:
- A total of 14 trades, representing around 17% of the national quarter total, took place in Florida, followed by nine sales (11% of the national quarter) in California and Arizona with eight sales (10%). Together, 31 trades or 37% of the national quarter took place in these three states.
- Five Q1 2023 sales were completed between $100 million and $199 million each.
- The acquisition of the 1,000-room JW Marriott San Antonio Hill Country Resort & Spa in San Antonio, Texas, by Ryman Hospitality Properties, Inc. for $800 million from Blackstone.
- The acquisition of the 250-key Nautilus Hotel in Miami Beach, Fla., for $164.5 million by Service Properties Trust from Quadrum Global. The hotel, which is currently managed by Sonesta International Hotels Corp. and subsequent to a major renovation slated to be completed in 2025, will be rebranded to Sonesta’s The James brand.
- The acquisition of the 276-key Claremont Club & Spa – A Fairmont Hotel in Berkeley, Calif., for $163.3 million by Ohana Real Estate Investors from Blum Capital Partners.
- A joint venture between Gencom and GD Holdings, LLC acquired the 192-key St. Regis Chicago from Magellan Development Group for $133.5 million. This trade represents the closing of a forward sale of a new hotel agreed upon in 2020.
- Mission Hill Hospitality purchased the 144-key AC Hotel by Marriott Clearwater Beach and the 139-key Courtyard by Marriott Clearwater Beach for $113.7 million from Norwich Partners.
- Southwest Value Partners acquired the 575-room JW Marriott Tucson Starr Pass Resort & Spa for $112 million from Fortress Investment Group.
CHALLENGES IMPACTING ACTIVITY
Despite many hotel deals being completed in the U.S., activity remained slow due to the disconnect between operating fundamentals and capital markets. The pricing of the hotels continues to stay steady and offer discounts to replacement costs, which have seen a sudden increase in the recent past.
Despite the slowing economy and indications of a possible recession, there has been a strong demand for transient lodging accommodations and relatively low increases in net new hotel supply, which are expected to boost the sector’s performance. Length of stay is increasing in many markets, driven mainly by the return of leisure travel.
While Americans have resumed their travel overseas, inbound travel to the country is returning and is somewhat impacted by the federal government’s slow processing of visa applications.
The sector continues to be impacted by labor shortages and supply chain problems, along with increasing insurance costs and property taxes. Several lodging assets are starved of capital, and skyrocketing renovation costs are projected to affect investment underwriting and decision-making, the survey said.