Hotel Investors Re-entering Market

NORTH AMERICA More than half of hotel investors surveyed by Jones Lang LaSalle Hotels indicate a dominant “buy” strategy over the next six months, signaling increased transaction velocity in 2011. Some 52% of respondents to JLLH’s biannual Hotel Investor Sentiment Survey are in “buy” mode, while the “hold” strategy is dropping in popularity. The “buy” sentiment is at its highest level in five years, evidencing strong investor interest in pursuing acquisitions at the bottom of the cycle. Investors’ “hold” sentiment is at 33%, a three-year low. At the same time, investors’ “sell” strategy inched up to 9.6%, the highest level since the onset of the downturn. Sellers bringing high-quality, well-located assets to market will receive substantial attention from equity-flush buyers. “After protracted dislocation and losses, transaction activity in the hotel real estate sector is regaining vigor,” says Arthur Adler, managing director and Americas CEO for JLLH. “Hotel markets are heating up across the Americas. Now that operating fundamentals have clearly turned the corner, buyers are becoming increasingly aggressive as they seek to establish a foothold at historically low purchase prices.” Investors’ intentions to buy assets are highest in international gateway markets like Boston (71.9%), New York City (71.7%), Miami (69%) and Washington, D.C. (61.1%), as these markets experienced the greatest rebound in hotel performance. Respondents also indicated significantly increased intent to acquire assets in Tampa, Denver, Philadelphia, Orlando and Phoenix. Momentum in the select-service hotel transactions market is building. “The number of select-service hotel portfolios on the market has increased over the past three months and continues to rise rapidly as institutional owners and special servicers work to clear distress off their books,” Adler says. “Debt liquidity both for acquisitions and refinancings is slowly increasing, and exceptionally low base interest rates have created an attractive lending environment. Lenders are setting interest rate floors resulting in highly profitable spreads relative to base interest rates.” Due to an improving economic outlook and strengthening investor confidence, respondents’ leveraged IRR requirements have tightened by over 210 basis points in the Americas, narrowing to 18.8%. This represents the second consecutive contraction surveyed since the bottom of the market, marking the slowly decreasing risk perception in the sector.

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