Hotel deals for 2013 reflect a nearly fifty-fifty split between $4.3 billion single asset transactions and $3.7 billion portfolio sales. Resort investments have nearly doubled since 2012 and today account for 25 percent of the total transaction volume. JLL expects investors to remain particularly keen on the resort segment given the constrained new resort development pipeline, which will underpin the performance of existing resorts.
“Hotel transactions thus far in 2013 have outpaced levels recorded during the same prior-year period, driven partly by two mega portfolio sales in excess of $1 billion each,” said Art Adler, Americas CEO of Jones Lang LaSalle’s Hotels & Hospitality Group. “We anticipate that by year end, U.S. transaction volume will reach $17.5 billion, marking a 10 percent increase over 2012.”
Secondary markets witnessed deal volume spike
Contrary to 2011 and 2012 when international gateway markets dominated deal volumes, the first half of 2013 witnessed a significant shift in the location of activity. While New York, San Diego, Washington, D.C., Miami and San Francisco maintained their positions as “most active” for hotel trades, secondary and previously unranked markets dominated the other six spots on the list of U.S. top 10 markets for hotel investment.
“Due to the increased amount of product available for purchase in secondary markets, these cities were extremely active with three new contenders among the most liquid markets: Atlanta, New Orleans and Houston. These large secondary markets will remain targets for investors, as their RevPAR growth should outpace national averages,” said Adler. “For the balance of 2013, we also expect the traditional gateway markets, which have been a bit quieter in terms of deal closings, to experience more robust transaction levels.”
Following New York as a top market for hotel investment Atlanta, New Orleans and Houston have emerged as core locations:
- Atlanta ranks No. 2: Making its debut on the top 10 list, foreign capital drove Atlanta’s deal volume, which totaled $400 million during the first five months of 2013. The sale of the Marriott Marquis, a transaction arranged by Jones Lang LaSalle, represented approximately 75 percent of the deal volume in the market. The city, consistently ranking among the top five convention center markets in the country, witnessed nearly 10 percent RevPAR growth year-to-date April 2013.
- New Orleans ranks No. 3: REITs accounted for 80 percent of the $345 million in purchases during the first five months of 2013. The market remains among the strongest-performing in the United States, with 10 percent RevPAR growth in the first five months of the year over the same period last year.
- Houston ranks No. 9: Houston’s hotel market posted the third-highest national growth rate among the country’s largest lodging markets in 2012 and the double-digit pace is continuing in 2013. The healthy performance of the market kept investors’ interest as hotel trades totaled $155 million year-to-date.
Given the increased amount of product on the market in secondary cities, the most active investor groups thus far have been private equity funds, which accounted for 35 percent of acquisitions, while public REITs and sovereign wealth funds each accounted for 21 percent. Private equity funds flush with cash funded the bulk of the purchases priced in excess of $100 million, whereas REITs have dominated the $60 to $100 million space in gateway markets and select secondary markets, such as New Orleans.
“REITs have accounted for fewer big-ticket purchases so far this year, but we expect this trend to shift during the second half of 2013 as an increased amount of large high quality assets are marketed for sale in core markets. Private equity funds are expected to continue to focus on assets which have upside potential, along with portfolios of select service hotels,” concluded Adler.
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