Q3 2018 U.S. Lodging Market Update
November 1, 2018 11:41am
By Daniel Lesser
What started as a bursting of the U.S. housing bubble between 2006 and 2007 and mushroomed into a failing subprime mortgage/credit market, ultimately resulted in the worst financial crisis since the Great Depression of the 1930s. Ten years ago, the Great Recession of 2008/2009 was ushered in by a full-blown international banking crisis sparked by the collapse of blue-chip investment banks Bear Stearns and Lehman Brothers. Through the end of Q3 2018, Wall Street is enjoying another heyday as profits for commercial banks are at a record high, the stock market is in its longest bull run in history, the U.S. economy is humming, and the Trump administration’s deregulation and tax cuts rule the day. Furthermore, the globe is awash with diverse pools of debt and equity capital that increasingly favors real estate as a preferred vehicle for returns on and of capital.
High levels of U.S. consumer and business confidence are being fueled in part by low unemployment rates and rising wages both of which continue to have positive effects on the demand for U.S. hotel room night demand. Additionally, new transient hotel room supply continues to rise at a rate lower than the increase in demand, resulting in growth and record setting levels of national occupancy, average room rate, and revenue per available room, and a near term outlook of more of the same.
The LW Hospitality Advisors (LWHA) Q3 2018 Major US Hotel Sales Survey includes 57 single asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled $6.4 billion and included approximately 15,300 hotel rooms with an average sale price per room of $419,000. By comparison, the LWHA Q3 2018 Major US Hotel Sales Survey identified 44 transactions totaling roughly $2.6 billion including 11,400 hotel rooms with an average sale price per room of nearly $240,000.
Notable observations from the LWHA Q3 2018 Major US Hotel Sales Survey include:
Pebblebrook Hotel Trust’s (PEB) winning $5.2 billion bid to acquire LaSalle Hotel Properties (LHO) is a significant Q3 2018 portfolio transaction. PEB prevailed following a series of offers that followed its first attempt to purchase LHO during Q1 2018. The bidding war for LHO between PEB and Blackstone was intriguing given that it occurred nine years into an economic expansion.
Limited availability of employees coupled with a dramatic escalation in costs of labor and increasing insurance and property tax expenditures represent significant challenges for the sector. While rising interest rates create upward pressure on inflation and operating expenses, the continuous repricing of room nights positions lodging as a favorable investment hedge against any decrease(s) that may occur in the purchasing power of money.
Although no one knows when, the duration, and depth of recessionary effects on the U.S. and other global economies, and the risk for such phenomena is higher now than it has been for more than five years. Global trade policy tensions, an emerging market debt crisis, and/or an unforeseen shock may occur, however any black swan event(s) would need to be large and sustained to undermine growth in the U.S. economy. As long as U.S. economic expansion endures, the outlook for lodging fundamentals will remain positive resulting in continued deployment of domestic and foreign investment, and institutional capital into single assets and portfolios of all types and locations of U.S. hotels.
View the LW Hospitality Advisors Q3 2018 Select Major U.S. Hotel Sales Survey.
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Daniel H. Lesser, President & CEO of LW Hospitality Advisors LLC (LWHA), brings more than 35 years of expertise in a wide range of hospitality operational, investment counseling, valuation, advisory, and transactional services. He provides services to corporate, institutional, and individual clients as well as public agencies on all facets of hospitality real estate including: litigation support and expert testimony, site evaluation, highest and best use analysis, appraisals for mortgage, acquisition, and portfolio management, workout strategies, operational analysis, development consulting, property tax assessment appeal evaluations, economic impact studies, fairness opinions, deal structuring, and negotiation of management and franchise agreements. Mr. Lesser had been retained in connection with a broad variety of lodging assets throughout the Americas, as well as in Europe, the Middle East and Asia.
Contact: Daniel Lesser
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