August 10, 2010 - In H1 2010, 322 Transactions and Property Transfers occurred. There were 243 Individual Transactions, which accounted for 76% of total volume. 52 Portfolio Transactions accounted for 16% while Merger Transfers at 27 accounted for 8%. Total Transaction and Transfer Volume for Q1 and Q2 showed minor increases over the prior year for the first time since the 2007 peak.

Of the 322 Transactions and Property Transfers, 218 reported a selling price publicly. For those hotels, the average selling price per room (ASP/room) at $99,480 increased 77% or $43,190/room over the same two quarters in 2009. In the first half of the year, 29 hotels larger than 200 rooms transacted with an ASP/room of $160,024, while 189 hotels smaller than 200 rooms transacted at $67,703/room. 

All metrics underscore that it was larger, well-located hotels, either leading independents or top brands, that were amongst the first hotels to market. Such a large number of hotels in the acquisition mix will alter the sales distribution and skew selling price trends upward, as was the case in H1. 

An unusually high 52 hotels were sold at a selling price greater than $10,000,000/hotel. 29 of those hotels sold at an even higher $20,000,000/hotel. 53 sales occurred either in Central Business Districts of larger cities or in destination resort locations. 11 hotels were from the luxury chain scale category and 26 were upper upscale hotels. 

WALL STREET BANKING � A TRANSACTION CATALYST

The volume improvements were primarily due to an increase in Wall Street mortgage banking activity that regained momentum early in the year after a prolonged recessionary hiatus. In a few cases, IPOs were floated, creating equity pools for new publicly traded lodging REITs that found the larger, insti¬tutional type investment opportunities attractive for seeding their portfolios. Considerable equity has also been amassed in investment funds that are acquiring similar assets. In H1, private investors (owners/operators, equity funds and hotel ownership groups) accounted for 85% of all Transaction and Property Transfer purchases. Publicly traded REITs made up another 9%, while other miscellaneous entities accounted for the remaining 6%. 

Substantial corporate debt has been raised at very at¬tractive rates, providing balance sheet liquidity and cash reserves needed for participation in future acquisition opportunities. Anecdotal evidence suggests that many investor groups (Wall Street bankers, public and private hotel companies and equity funds) will be gearing up for new M&A activity and institutional sized individual trans¬actions as soon as the stock market ticks up or is viewed as being stabilized. Selling prices will be attractive as the devaluation and de-leveraging process continues and as institutionally raised debt and equity becomes increas¬ingly available.

MAIN STREET LENDING

Things are a bit different in the regular banking system. Lenders have little incentive to move distressed hotel assets from their books. Regulators have softened market-to-market rules and are not aggressively forcing loan write-downs, slowing the flow of distressed real estate to the market. 

It�s hard to imagine there will be any significant increase in new loan availability until banks clear distressed loans from the previous cycle off their books and new concepts for mortgage securitization are developed. Refinancing and transaction lending, where available, requires significant bor¬rower equity. New construction lending is practically non-existent. Both the flow of assets to the market and new bank lending remain stalled and are likely to stay that way for the foreseeable future. 

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