STR: Hotel transactions down 74 percent between March and May

COVID-19’s effect on hotel performance reduces market for sales

Between March and May, hotel sales were down 74 percent year-over-year, according to STR’s Hotel Transaction Almanac. The almanac shows volume and number of transactions dropped rapidly in the first five months of the year.

AS U.S. HOTEL performance has slipped during the COVID-19 pandemic, so did hotel transactions, according to STR. Between March and May, hotel sales were down 74 percent versus the same time the previous years.

STR’s Hotel Transaction Almanac also forecasts that the market will recover, eventually.

“The industry went from a position of record profit levels to financial distress in a matter of weeks, creating a shift in focus for those in the transactions community,” said Hannah Smith, a senior consultant at STR. “Looking ahead, we expect transaction activity to eventually pick up, while pricing will continue to decline later in the year, as investors look to acquire distressed assets at a discount. While activity in the sector will likely remain slow into the third quarter, we expect robust transaction activity late in the year, as the industry begins to see the light at the end of the tunnel.”

There was much change in the hotel market for the first five months of the year. In February, transaction volume rose 14 percent over the previous year with the total number of transactions down from 514 to 457. By March the volume was down 74 percent due primarily to a substantial decline in the number of hotel transactions, which dropped 48 percent year-to-year.

In April the number of transactions dropped 86 percent, the steepest decline with only 43 hotels sold during the month compared to 317 in April 2019. However, May saw the greatest decline in total transaction volume, down 94 percent with 68 assets sold for a total volume of $112 million as opposed to 329 hotels sold for a total of $1.8 billion the previous May.

STR compares the 2020 transactions to 2019, when there were 3,897 property sales totaling $41.5 billion, ranked behind only 2007, 2018 and 2015.

“2019 transactions were similar to previous yearly levels as investors looked to capitalize on what was still an incredibly profitable operating environment,” Smith said.  “The sale of the Bellagio contributed greatly to the total transaction volume, with the $4.25 billion purchase price representing more than 10 percent of the total transaction volume. That price is the largest single property hotel sale in CoStar Group’s database. Excluding that sale, 2019 transaction volume would have been more like 2016 and 2017 levels.”

In April, global consulting firm HVS laid out four objectives that must be achieved before hotel transactions can reach normal levels.