The strong performance of hotel assets continues to attract capital to our industry. Hotel values reached new peak levels and capitalization rates remained steady in 2014, fueled by hearty net income increases and a plethora of low cost, yet still disciplined, capital. This article, which is published biennially1, discusses trends in hotel capitalization rates and provides an outlook for 2015.
Hotel transaction activity was very robust over the past year, with total volume increasing 22% over that of 2013 based on preliminary data for hotels that sold at a price of $2.5 million and above, as reported by Real Capital Analytics (RCA). Total volume reached $30 billion, just $2 billion shy of the prior peak volume levels achieved in 2006 and 2007. Total volume for hotels priced at $10 million and over (major hotel sales) increased by 25%, while the number of hotels sold in this price tier increased by a dramatic 46%, as market transaction activity was dominated by the sale of limited service and select service hotels. The average price per key of the major sales increased by only 4%, from $202,000 to $217,000 per room, due to the greater proportion of smaller, lower priced deals that comprise the data. Large full service hotel transaction activity was relatively muted by comparison. Portfolio activity was a dominant factor, with ten select service hotel portfolios ranging from $100 million to $1.1 billion in total price transacting in 2014. Over one-third of the sales volume in 2014 was categorized by RCA as a portfolio transaction.
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