HOTEL TRANSACTIONS IN the first-quarter of this year indicate many owners held on to assets as refinancing was a more attractive option than outright selling, according to a recent report by LW Hospitality Advisors.
Buyers spent an average $231,000 per key in 55 one-off trades, a more-than 15 percent drop in the average price per room recorded in the first quarter in 2017, which saw 54 trades.
The Q1 2018 average removes two large deals – the $1.3 billion trade ($4.3 million per room) of the Sands Casino Bethlehem and the $95 million sale ($2.4 million per room) of the Soho House Chicago. Including the two deals, transactions totaled $4.3 billion and included 13,100 hotel rooms with an average sale price per room of $332,000.
“Net of the two trades … results in total Q1 2018 U.S. transaction volume [is] roughly $2.9 billion and approximately 12,700 hotel rooms with an average sale price per room of $231,000,” said Daniel Lesser, president and CEO of LW Hospitality Advisors LLC of New York City.
By comparison, in the first quarter of 2017, LW Hospitality Advisors tracked 54 transactions or 13,200 rooms totaling $3.6 billion with an average $273,000 per key.
“Record-low interest rates, though climbing recently, have continued to fuel a search for yield that is drawing capital into commercial real estate, particularly hotels, from other asset classes and global investor capital inflow to the U.S.,” Lesser said.
“However, there has been a dearth of new product for sale as vigorous debt markets offering stretch pricing and covenant-light structures, provide existing sponsors refinancing opportunities and little motivation to transact a change of ownership,” Lesser said.
Most real estate loans have covenants in place that protect the lender in case of default, but a “covenant-light” mortgage eases up on such stipulations. Stretch pricing includes a loan for the asset as well as a loan of cash.
With an economy that continues to grow, the demand for leisure and business travel accommodations has continued to rise, outpacing supply through the first quarter of 2018, says the report.
But the current state of financing may begin to change in the next few months, Lesser said. “As interest rates increase, refinancing options become less attractive and current owners may seek to take advantage of current pricing to recycle assets.”
He also sees the gap between supply and demand narrowing. Hotels are making money more by increasing rate than selling rooms.
The growth in supply, however, has been tamped down by “rising development costs coupled with constrained development financing and potential negative trade/tariff implications,” Lesser said. “Additionally, higher operating costs, including labor and property taxes, along with pockets of geopolitical instability and economic slowdown are likely to pose headwinds.”
Other trends impacting the industry outlook include “a negative sentiment related to traveling to and from the U.S. given the Trump administration’s stringent policies on immigration and tourism.” Economists anticipate a weakening of the U.S. dollar, which might encourage inbound travel to the U.S. but put pressure on domestic spending.
Asian American hoteliers played a significant role in the first-quarter transaction story.
The deals include:
- Sun Development and Management Corp.’s $48.5 million sale of its Homewood Suites by Hilton Nashville-Downtown in Nashville, Tennessee, to AVR Realty Co. Bharat Patel is co-founder and CEO of Sun Development.
- SREE Hotels’ sale of the Westin Washington National Harbor in Oxon Hill, Maryland, for $55.5 million to Capstone Development LLC. Ravi Patel is co-founder and chairman of SREE and Vinay Patel is president and CEO.
- Peachtree Hotel Group’s $13.5 million sale of its Aloft Jacksonville Airport in Jacksonville, Florida, to Gehr Hospitality. Peachtree’s leadership team includes Greg Freidman as CEO, Mitul Patel as COO and Jatin Desai as CIO.
- Baywood Hotels’ sale of its Hampton Inn & Suites Buffalo Airport in Buffalo, New York, for $12.2 million to Manga Hotels. Al Patel is CEO of Baywood Hotels and Sukhdev Toor is president and CEO of Manga Hotels of Toronto.
- Hersha Hospitality Trust’s sale of its Hampton Inn Manhattan-Seaport Financial District in New York for $32.4 million to Shamin Hotels. Jay Shah and Neil Shah are CEO and president, respectively, of Hersha. PC Amin and BN Shah are co-founders of Shamin Hotels and Neil Amin is CEO.
- M&R Hotel Management’s sale of the Comfort Inn Midtown West in New York for $29.2 million to McSam Hotel Group, led by Sam Chang. Amit Gandhi is president and CEO of M&R.
Buyers of assets in Q1 2018 include:
- Holiday Inn Rochester in Rochester, Minnesota, for $18.2 million by EKN Development Group. Ebbie K. Nakhjavani is founder and CEO of EKN.
- AC Hotel by Marriott Seattle Bellevue/Downtown Bellevue, Washington, for $87 million by lshin Aju Hotel Bellevue LLC of South Korea.
- Sheraton Suites Fort Lauderdale Plantation in Plantation, Florida, for $24.7 million by Everwood Hospitality Partners. Amit Govin and Amit Patel are principals of Everwood.
- Chicago Marriott Schaumburg in Schaumburg, Illinois, for $35.5 million by a joint venture of Arbor Lodging Partners and Middleton Partners. Vamsi Bonthala is CEO of Arbor Lodging Partners and Sheenal Patel is CEO of Arbor Lodging Management.
- Fairfield Inn & Suites by Marriott Greensboro Wendover in Greensboro, North Carolina, for $11.5 million by WeCare Hotels. Hiren Patel is president of WeCare.
- Wyndham Anaheim Garden Grove in Garden Grove, California, for $61 million by Khanna Enterprises, of which Ravi Khanna is founder and president.
- Best Western Plus Plaza Longmont in Longmont, Colorado, for $11.5 million by Shamin Hotels.