After two strong rebound years, the volume of hotel transactions in New York reached an all-time record high in 2011. Eighteen transactions, comprising nearly US$3.5 billion in assets traded, representing a 150% increase over 2010 volume, according to preliminary numbers from Jones Lang LaSalle Hotels’ Hotel Intelligence New York report.
Approximately 50% of the city’s acquisition volume was driven by real estate investment trusts (REITs) in 2011. The firm’s hotel transactions experts predict 2012 will bring much the same as New York is expected to remain the most active hotel transaction market in the United States.
Key metrics contributing to New York’s place as the top ranking global market for hotel transactions in 2011 and 2012 include:
* New York’s hotel transaction volume in 2011 represented more than 20% of the total United States transaction activity.
* Based on assets in various stages of the disposition process, hotel deal volume in New York City is expected range from US$2.2 billion to US$2.6 billion in 2012, representing approximately 15% of Americas total transaction volume. While this pace represents a softening on the record 2011 levels, New York is expected to continue to be the most liquid hotel market in the world.
* Private equity, institutional and off-shore buyers are poised to dominate the hotel acquisition landscape in Manhattan. The city will continue to be one of the most attractive hotel investment markets for public REITs. As such, when liquidity returns to the public markets, REITs will once again turn to New York for acquisition targets.
* Room supply is expected to increase by 3.4% with 17 new hotels totaling 2,700 new rooms expected to deliver in 2012.
During 2011, Manhattan was the most liquid city for hotel transactions across the globe, and grabbed the attention of investors due to its strong track record of resilience. London, Singapore, San Diego and Paris rounded out the remaining top five markets in terms of hotel transaction volume in 2011, each achieving more than US$1 billion in transactions.
Approximately a dozen single asset hotel transactions are expected to close in New York in 2012. “New York transaction activity in 2011 was driven by the perfect combination of strong operating fundamentals, quality product being brought to market and unprecedented REIT appetite,” said Arthur Adler, managing director and Americas CEO of Jones Lang LaSalle Hotels. “During 2012, REITs have been less acquisitive since their share prices declined in mid-2011, but are continuing to look for opportunities to upgrade their portfolios.”
The profile of hotel ownership in New York continues to evolve through economic cycles. “REITs now own approximately 20% of the room stock in New York and as such are among the top three hotel owners in the City, along with owner/operators and private equity funds,” added Amelia Lim, executive vice president for Jones Lang LaSalle Hotels and leader of the firm’s Northeastern U.S. advisory practice.
According to Jones Lang LaSalle Hotels’ report, New York is also likely to garner international interest from high profile Middle Eastern buyers and select Asian investors. “During 2011, Jones Lang LaSalle Hotels advised on nearly US$400 million of transactions in New York including the landmark asset sales of the Paramount New York, and the Morgans and Royalton hotels,” said Jeffrey Davis, Managing Director of Jones Lang LaSalle Hotels and head of the New York Investment Sales team. “With fewer assets expected to come to market our clients should be able to tap into strong interest from private equity funds and off-shore investors, while the REITs could also play depending on how their share prices fare.”
New York’s hotel room revenue per available room (RevPAR) increased by 7.4% through year-to-date November 2011, driven by growth in average daily room rate.
Notwithstanding supply increases, Manhattan’s lodging fundamentals are expected to show ongoing strong growth in 2012. “New York City has demonstrated the ability to absorb new supply as exhibited by its historically high occupancy rates. The City has rebounded from the recession, and the market will remain high on investors’ list of cities to target for investment in 2012,” Adler said.