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 The Average Selling Price per Hotel Room Jumps to $107,988, an Increase of 86%
When Compared to the 2009 Year-end Total of $58,190 

LE's US Hotel Transaction Trends Report for 3rd Quarter 2010

 
November 4, 2010 - The average selling price per room (ASP/room) accelerated 86% to $107,988 for the first nine months of 2010, compared to the 2009 year-end total of $58,190 per room. Earlier, ASP/room had dropped a dramatic 51% from the peak of $119,553 per room in 2007 to the cyclical low established in 2009.

The volume of transactions reporting a selling price for these year-over-year (YOY) 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. The institutional-type hotels these capital-rich investors are able to attract are generally concentrated in the Top 25 markets, mostly CBD and resort locations larger than 200 rooms, and are either newly constructed in the last decade or older, “classic” high-end hotels.

For the first nine months of the year, investment flows into the industry more than doubled compared to 2009. Total investment surged to $4.8 billion, up from $2.0 billion in 2009. Acting as buyers, REITs are the largest investor group at $1.9 billion, an amazing ten-fold increase over 2009. Private equity groups follow with $1.3 billion, 3 times greater than in 2009.

The significant sellers are privately held hotel companies and individual owners who divested a combined $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.

Buyer & Seller Activity Dramatically Changed
A total of 466 hotel transactions and property transfers have taken place in 2010 YTD, 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. 62 hotels were part of a portfolio sale, while 27 hotels transferred due to a corporate merger event, 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 markets have proven most attractive. Boston, New York City, Orlando, Phoenix and Washington DC account for 55 transactions, or 42% of those that occurred in the Top 25. 86 transactions are in CBD or Resort locations, 47 more than last year. 116 properties are in the Upscale and above chain scales, a 53-unit or 84% increase, while 56 are larger than 200 rooms, an increase of 25 from 2009. Lastly, 97 transactions are larger than $10 million, up by 52 transactions from 2009. Such once-in-a-cycle, institutional-type opportunities being drawn to the market by capital-rich investors are the reason average selling prices per room are accelerating in 2010. These property types represent a significant upgrade to the normal inventory mix of “distressed” hotels that are usually transacted at market bottoms.

In 2010, REITs have spent $1.87 billion in acquiring 46 high profile properties, a remarkable 10 times the dollar amount invested for the comparable 2009 period. Thus far, the amount invested for acquisitions by REITs is 5½ times that of their divestment totals.


Equity Funds have increased their investment to $1.029 billion for 48 transactions this year, up from $330 million, a $700 million increase over 2009. They too are net investors, as their dollar volume of acquisitions is twice the amount of their divestments.

Flush with cash, these investor groups have often paid a premium to attract such scarce, high profile properties. They often forgo normal leverage targets and invest larger amounts of cash, sometimes up to 100% of the purchase price, in order to effectuate market entry at the bottom of the cycle.

Privately held large hotel companies are the largest net sellers in 2010, divesting $1.745 billion in hotel real estate, up 3½ times from the comparable 2009 period. Individual owners follow at $1.136 billion, up 31% from 2009.

For more information, please contact us at 603-431-8740 x25 or info@lodgingeconometrics.com.

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Contact: 

Lodging Econometrics
p: 603.431.8740, x 25
info@lodgingeconometrics.com
www.lodgingeconometrics.com
 

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Also See: The Average Selling Price per Hotel Room Jumps to $99,480, an Increase of 77% When Compared to the First Half of 2009 / LE's US Hotel Transaction Trends Report for First Half of 2010 / August 2010

The Average Selling Price per Hotel Room in 2003 was $70,308, 16% Increase from Prior Year / Lodging Econometrics Sales and Pricing Trends Report / May 2004
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