Hotels still holding onto value in most US markets
Panelists at the Hunter Hotel Investment Conference speaking about hotel value believe many U.S. markets are still performing well and offer opportunities for purchases and sales.
ATLANTA—With most signs pointing toward the U.S. hotel industry nearing the end of its cycle, hoteliers are looking for guidance on hotel acquisitions and dispositions.
Panelists speaking during the “Hotel values in a changing market” session at the 2017 Hunter Hotel Investment Conference explained that although the industry isn’t performing as well as it was a few years ago, most markets are still producing profits, making them attractive acquisitions under the right conditions.
Current Value
The U.S. hotel industry is close to its peak valuation phase, said Hank Staley, managing director at CBRE Hotels. Although STR projects supply growth to exceed demand growth in 2017 and 2018, he said, the decline is still minimal and shows continued revenue-per-available-room growth. (STR is the parent company of Hotel News Now.)
“We’ve got a decline ahead of us, but it’s so slight it’s practically immaterial,” he said. “I’m not as pessimistic as some seem to think as it relates to the next two, three, four years.”
The industry is coming off a period of significantly higher RevPAR growth into a situation in which RevPAR is going everywhere, said McKenna Luke, director at HVS. RevPAR growth and decline will occur market by market and asset by asset, she said.
The majority of properties will see RevPAR and cash flow going to their bottom lines increasing, Luke said, though less than in years past. Some asset types in certain markets will see declines because of supply, property improvement plans and other factors, she said, but most will see positive growth.
Heading out of 2016, a great deal of private equity was involved in acquisitions, said Sam Reynolds, EVP and director of acquisitions and dispositions and portfolio management at Apple Hospitality REIT. While the general belief is that public real estate investment trusts were on the sideline, he said, the truth is they were still looking for deals.
“You will see a trend away from some of the 2016 buyers more toward those like RLJ and ourselves,” he said.
There’s a lot of money out there on the sidelines, said Kate Henriksen, SVP of investment analysis and portfolio management at RLJ Lodging Trust.
“A lot of REITs have been selling assets so they have cash on their balance sheets,” she said. “Private equity is accruing it. We’re finding the best deal we can.”
Foreign capital will remain in play, she said, but it’s unknown if it will increase since it’s a moving target to get money out of those countries.
“Thirty-billion dollars is a pretty fair target for what we’re seeing in the overall transaction target,” she said.