Transaction Trends – Executive Summary
Total Hotel Investment Tops $30 Billion. Selling Prices At Record Highs.
In 2014 total investment in the lodging industry was an estimated $30.8 billion. Of the 1,292 hotels that were transacted 935 reported a selling price into the public domain. The average selling price per room for those hotels was $156,002, up a dramatic 20.6% Year-Over-Year (YOY).
The healthy increase in selling prices is due to record-setting hotel revenues and profits, low interest rates and the availability of attractive financing terms. LE foresees selling prices continuing to accelerate for the next several years as hotel performance continues to shine in the absence of any significant new supply. Another part of the equation is that interest rates, although expected to rise, still remain attractive causing competition to intensify for prized single assets and portfolios.
A total of 1,292 hotel assets transacted or transferred ownership in 2014. Since the bottoming of 528 transactions in 2009, total transaction volume over the last five years has ranged between 1,261 and 1,457 hotels. It is a narrow range far distant from the 3,218 transactions and transfers reported in 2007.
In 2014 there were 799 single-asset transactions and another 481 hotels that changed ownership as part of a portfolio sale. A mere 12 hotels were recorded as part of merger activity. It is thought that any significant industry-wide consolidation of companies and brands may still be at least two years away, after the expansion phase of the current real estate cycle concludes and the maturity phase begins in 2017.
Buyer & Seller Activity
For just the hotels that reported a selling price, investment totaled $22 billion. Equity funds were the most active investors in 2014 adding $7.4 billion in hotels, most of which were portfolio purchases. Publicly traded REITs were the next biggest acquirers. They invested $6.4 billion, primarily focusing on high-profile single assets divested by privately held hotel companies. Although on balance they were net-sellers in 2014, privately held hotel companies were also significant buyers, investing $4.4 billion, mostly in single assets and smaller portfolios.
Publicly traded REITs were significant purchasers of large, high profile, single-asset Luxury and Upper Upscale hotels that only come to the market during periods of high liquidity. The demand for these assets from equity funds, REITS and privately held hotel companies caused a shift in the 2014 transaction mix. For the first time in this cycle, more than 50 percent of all hotel transactions occurred in the Luxury, Upper Upscale and Upscale chain scales.
LE expects that Transaction volume will intensify and selling prices will continue to soar through the expansion phase and into the early part of the maturity phase of the current cycle, probably peaking one to two years ahead of industry profitability.