Wait-and-See Tempers Cautious Optimism
As the US economy enters its sixth year of expansion, and volatility heightens in the public equity markets, the chase for yield is intensifying and expanding the supply of US focused capital. Despite increased caution and continued institutional market discipline, lodging fundamentals remain strong with few markets facing development driven supply issues and room rates well positioned for continued growth through at least 2016. With strong income appreciation and many investors pricing rising interest rate risk into underwriting, the US lodging investment market remains well positioned to absorb controlled modest interest rate increases.
Overseas capital has become a major force in the US hotel investment market as weak economic growth prospects in many international markets, as well as perceived relative stability and security in America, has resulted in a significant amount of foreign capital pursuing US hotel assets. Although growth prospects in the sector have softened in the wake of global economic concerns and volatility, strong underlying fundamentals continue to buoy the US lodging investment arena.
The LW Hospitality Advisors (LWHA) Q3 2015 Major US Hotel Sales Survey includes 49 single asset sale transactions over $10 million, none of which are part of a portfolio. These transactions totaled roughly $2.1 billion, and included approximately 10,300 hotel rooms with an average sale price per room of $204,000. By comparison, the LWHA Q3 2014 Major US Hotel Sales Survey identified 42 transactions totaling roughly $3.9 billion including 11,000 hotel rooms with an average sale price per room of nearly $351,000. Comparing Q3 2015 with Q3 2014, the number of trades has increased by 17 percent while total volume has decreased by 46 percent. It is important to note that while the quarter over quarter 42 percent per room price decline appears dramatic, the Q3 2014 numbers were skewed due to inclusion of the $390 million trade or $1.9 million per room of the 210 room Park Hyatt New York. With 14 major hotel sales, California has been by far the most active transaction market followed by Florida with six major hotel sales.