News for the Hospitality Executive |
Sept. 12, 2011 - Over the past eight weeks,
the Standard & Poor's downgrade of United States long-term debt
rating and disappointing economic data have led to stock market
volatility and uncertainty among hotel investors. In its research
report, FocusOn: Market Volatility Impact on Hotel Transactions, Jones
Lang LaSalle Hotels provides an analysis of the hotel investment market
that highlights the outlook for medium and long-term fundamentals which
remains strong despite the current volatility. While the transaction
market is likely to slow for the remainder of the year from the lofty
first-half 2011 levels, the report highlights three of the top reasons
why the transactions market will remain active: a growing investment
interest from private equity investors, the continued attractiveness of
assets with strong in-place cash flow or value-add opportunities, and
an increasingly constricted supply pipeline.
Private equity emerges as new buying
audience REITs spent more than $4.1 billion on hotel investments
through August 2011 and have somewhat retreated from the acquisitions
market due to declining stock prices and lower trading multiples. These
shifts will even out the playing field between public and private
investors.
"Sellers will face a new buying audience: a
competitive bench of eager domestic and international private equity
and institutional buyers. This new competition is a force that will
ensure that values remain strong. Private equity and international
players will become increasingly active in top U.S. markets," said
Arthur Adler, Managing Director and CEO-Americas for Jones Lang LaSalle
Hotels.
"There is no shortage of domestic and
international equity capital for high quality hotel transactions as the
market still seeks prime markets and product. The recent market
disruption will provide an opening for opportunity funds, value-added
funds, core-plus funds, and private international asset collectors to
compete for top tier properties," added Robert J. Webster, Managing
Director for Jones Lang LaSalle Hotels. "We have seen no falloff in
investor interest for the marquis assignments that we are marketing at
this time."
Demand for strong cash-flow properties and value-added assets Quality assets with existing yield are still well positioned to trade in the current market as economic concerns result in a "flight to quality." Since 2009, the market has demonstrated that the strongest hotel assets rebound most quickly, even during protracted economic declines. Owning high quality assets in key markets virtually ensures strong asset liquidity. Since the beginning of 2010, the number of
high quality, full service assets that traded in core downtown areas in
key U.S. cities increased dramatically, cresting at 29 assets sold
during the second quarter of 2011.
"While the pace of transactions of this
caliber has softened slightly, investor interest remains high for full
service assets. We have taken first and second round bids during this
period of volatility and investor interest continues to be strong,"
said Adler.
Adler adds that value-added assets, which
have not been highly sought after by the REIT market, remain highly
desirable for private equity investors.
Another compelling reason why investors are
targeting hotel assets is that these investments act as an inflation
hedge. "Hotel ADR has grown at a higher pace annually than the consumer
price index in 26 out of the past 38 years and the correlation in high
inflationary times is extremely high. We expect hotel room rates to
continue to grow above inflationary levels," Adler said.
Constricted supply pipeline Investors' uncertainty and the lack of construction financing is likely to further delay plans for new development, which represents a silver lining for existing owners and potential buyers. "The industry is undergoing an unprecedented dearth in supply growth as we will likely record only three years between 2002-2015 where annual supply growth was at or above the long term annual average. All of the other years during this period supply growth will be nowhere near the average. This is a phenomenon we haven't previously experienced and should result in a longer and more robust recovery during the mid and long term investment horizon," said Webster. Investors are closely following hotel
fundamentals and if short-term growth slows or stalls, buyers and
sellers will naturally reset their value expectations despite the
highly favorable mid and long-term market fundamentals. "Due to the
high amount of equity-flush buyers, private equity investors'
positioning to drive a new bidding and pricing market and low supply
growth, the U.S. market for transactions will persist, even if at a
slower pace than in the first half of 2011," said Adler. "There will be
ongoing interest in the sector due to its long term attractiveness for
investments."
About Jones Lang LaSalle Hotels Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide the depth and breadth of advice required by hotel investor and operator clients, through a robust and integrated local network. In 2010, Jones Lang LaSalle Hotels provided sale, purchase and financing advice on $4.1 billion worth of transactions globally. In addition, advisory and valuation services were provided on over 1,000 assignments. The global team comprises over 225 hotel specialists, operating from 39 offices in 20 countries. The firm's advice is supported by a dedicated global research team, which produced 70 publications in 2010 in addition to client research. Jones Lang LaSalle Hotels' services span the hospitality spectrum; from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels' clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com
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Contact: Paige Steers +1 312 228 2797 [email protected] |
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