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Upscale and Luxury Lodging Investment Activity Plunged Significantly in 2008;
Highest Priced Deal in 2008 - the Hyatt Regency Waikiki at $410 million

DENVER, Colorado – January 7, 2009 – Less than $5 billion in upscale and luxury facilities changed hands in 2008, according to Stephen Hennis, Managing Director of Hospitium. This compares to the robust activity in each of the past three years which saw more than $17 billion in assets trade annually.

A total of 74 properties traded last year, the fewest since 2001 and a far cry from the 292 assets that sold in 2007. “The financial crisis has severely limited the amount of debt available and the economic uncertainty has made underwriting new acquisitions rather difficult,” Hennis states.

Large convention properties dominated the highest-priced deals in 2008. The Hyatt Regency Waikiki, which Hyatt bought through a bankruptcy sale, garnered the top price in 2008 at $410 million. The Hyatt Regency Century Plaza, whose new owner recently unveiled a major redevelopment plan, also attracted a high price at $366.5 million. Two other large Hyatt hotels in Orange County and Phoenix sold for $112 million and $96 million, respectively. Additionally, the Sheraton Grand Sacramento traded at $130 million, and the Sheraton LAX sold for $97 million in 2008.

The average price per room continued to decline from the record level of $243,000 in 2006 to $173,000 in 2008. “We have clearly seen the market change in the past 18 months,” Hennis says. “At the peak of the cycle, all of the stars aligned with a flood of capital, the high availability of low-cost debt, and strong revenue growth. Today, the market is no longer saturated with buyers, debt is challenging to find at attractive terms, and revenues are projected to decline.”

There are also opportunities arising with the market stress. “For those with capital available, the down cycle presents a chance to acquire assets at a sharp discount to their values only a couple years ago,”

Hennis indicates. “Most investors who acquired lodging facilities in the midst of the prior recession saw significant appreciation on their assets as the market recovered. On the flipside, some investors who acquired assets during the market peak will likely have issues with their debt, as some loans will begin to mature in 2009. Refinancing could be difficult, not only if debt remains elusive, but as values decline some owners will discover that their equity position has diminished, if not disappeared. Their only option to
salvage a return may be to sell in a tough market.”

While the lodging industry environment is expected to be difficult in 2009, there are some positive points.

“The industry is smarter and better prepared in many ways to weather the downturn. Revenues will undoubtedly decline with the shrinkage in room night demand, but lessons learned from the prior recession will help to reduce profit loss,” Hennis notes. “Additionally, the current state of the economy has limited new rooms supply, with many projects postponed or even cancelled altogether. This will hasten the recovery once demand levels rebound. ”

About Hospitium
Hospitium is a hotel consulting firm that specializes in the upscale and luxury sectors of the lodging industry. From the early stages of development or deal negotiation through asset disposition, Hospitium delivers timely and useful research, analysis, and insight that assist the various needs of owners, developers, management companies, and financial institutions. Hospitium provides a wide array of advisory services and products, including feasibility studies, market analyses, due diligence, underwriting, strategic planning, development consulting, and transaction guidance.


Stephen R. Hennis, CHA
Managing Director

Also See: The Lodging Ledger - Fewer Asset Listings and Less Debt Availability Trim Transaction Activity, Lodging/Residential Development Evolution / Steve Hennis / August 2008


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