Looking back at the first year of the new Millennium (or the last year of the old Millennium), it is easy to see that there was a sense of apprehension when it comes to hotel transactions. Although there was, and continues to be, lots of surface activity, very few trades of any significance took place. The primary factors influencing the slow year were; the limited resources for funding, tighter parameters on lending, limited tradable assets, and the lack of solid, qualified buyers. With 2000 behind us, we can now focus on the outlook for 2001, which includes dropping interest rates, tradable full-service assets, motivated sellers, and a return of qualified institutional investors.

The Year In Review

Last year�s biggest Washington hotel M&A deal was the acquisition of WestCoast Hotels by Cavanaugh�s Hospitality Corporation for $61.4 million. The Radisson/ Quality Inn transaction by the Port of Seattle for the expansion of SeaTac Airport maintained its position as the year�s largest multi-asset sale at $31 million. The sale of the Meany Tower Hotel near the University of Washington by Starwood for $11.5 million continues to top the single-asset sales for 2000. During the fourth quarter of 2000 there was a single hotel transaction in Washington for over $5 million. This was the sale of the Holiday Inn and Suites in Kent for $6.4 Million from Sunstone REIT to a private hotel company out of San Diego, California.

Due to the limited number of institutional investors and salable assets in the market, as well as the tighter parameters on lending in 2000, most of the deals done were for single assets ranging in size from 60 to 120 rooms. Land deals for development continued to be strong, both in the Seattle market and throughout King, Pierce and Snohomish Counties. New development again played a significant role in the overall success of the hotel market in terms of ADR and Occupancy. 

The Seattle CBD market ended the year with an occupancy percentage in the mid-70s, and an ADR over $160. A soft first quarter was the primary cause for annual occupancy dipping slightly below the 1999 level. With the number of new properties slated to open in 2001 (The Elliott � 450 rooms, Marriott Springhill Suites � 235 rooms, and the Clarion Inn � 200 rooms), it is expected that the overall market occupancy will remain relatively flat. Furthermore, we do not expect that the market will achieve the same double-digit growth in ADR that we have seen in recent years. It is expected that the lodging market will experience a rate of growth similar to that of inflation, resulting in fairly modest growth in RevPAR (Revenue Per Available Room).

Current Market Conditions

A return to basics is the key for the new millennium.  Hoteliers and investors alike continue to believe that hotel real estate has a place in any portfolio. As history has always shown, diversification will remain key in the coming years, and investors are expected to move away from volatile investments such as the Internet IPO craze of 1999 and 2000. We expect investors to look at key markets in the Northwest and remember that real estate provides necessary cash flow, appreciation and stability in any investor portfolio. Although the future outlook for the industry remains dependant on the local and national economies, both occupancies and average rates in key Northwest markets are expected to increase in the near future.

Snohomish County on the other hand had a down year from 1999. The cities of Lynnwood and Everett experienced an increase in room nights occupied, however new supply in Mukilteo, Lynnwood and Bothell had a dramatic impact on market occupancy.  This supply increase resulted in a year-end occupancy percentage levels in the low-60s, with little or no movement in ADR. In Pierce County we continue to see interest in Tacoma, due primarily to the availability 
of developable land and the ease of permitting compared to King County. Major projects continue to be discussed in Tacoma�s CBD, including a 400-room Marriott, a second tower on the Sheraton and an 87-room Kimpton Hotel on Foss Waterway as part of Team Tacoma. Currently under development is the 92-room Silvercloud hotel, which is located NW of the CBD on Commencement Bay. The primary market occupancy percentage for year-end 2000 for Tacoma was in the high-60s, similar to 1999, with a year-end ADR in the low-$80s, or half that of the Seattle CBD.  This resulted in a slight increase in RevPAR over 1999 for the primary Tacoma hotel market.

With the beginning of the New Year and a little help from the Federal Reserve, there is a positive outlook for 2001. As long as local economic factors continue to remain positive, it is expected that the necessary components for a strong year will return. Interest from lenders remains a top priority, as does the return of qualified individual and institutional investors. The availability of quality, full-service and mid-tier assets will occur as long as the other components are in place and Capitalization Rates remain at or near current levels. Although 2000 ended without much fanfare, outlook for the New Year, and some say the beginning of the new Millennium, remains positive for the Washington Hotel INNvestor.