(Save the date: RealShare L.A.comes to the Hyatt Regency Century Plaza in Los Angeles, CA on March 27, 2013)
LOS ANGELES-At the ALIS conference in Los Angeles, Chicago-based Jones Lang LaSalle presented its viewpoints on the shifts the hotel industry will face in the next five years. Operating fundamentals are poised to remain strong in 2013, with the US expected to account for half of the hotel transaction volume worldwide in 2013.
JLL’s Americas CEO and managing director Art Adler pointed to five key drivers of hotel transaction levels in the years ahead including industry fundamentals, the availability and cost of capital, REITs’ stock prices, the amount of product on the market and the composition of hotel ownership.
“There will be a significant amount of property coming to market in 2013 from a combination of the de-leveraging occurring as $55 billion of CMBS matures in the next few years and, believe it or not, we’ll also see investors who bought earlier in the cycle want to see their capital gains and they’ll sell,” Adler said at the presentation. “You can’t underestimate the composition of hotel ownership over a long period of time as many hotels today are in the hands of traders versus holders. Institutional investors like private equity and REITs trade more often and that will fuel more transaction volume that we’ve seen in past cycles.”
On the debt capital side, JLL pointed out that cash is always king, but debt is on its way back. “What has changed in the last 18 months has been truly incredible on the financing side of things, driven by the CMBS reemergence in 2012,” added Mathew Comfort, EVP for JLL. “More asset types are eligible for financing and there is a higher level of active lenders with healthy competition among them.”
Bond buyers have become much more receptive to fixed-income properties such as real estate and particularly hotels, says the firm. Hotels provided an opportunity for lenders to receive a higher yield while still maintaining high quality assets and sponsorship.
With a more liquid debt environment for hotels, competition is also expected to rise among buyers with private equity players, REITs, sovereign wealth funds and family conglomerates expected to lead activity in 2013, JLL added.
“We should see hotel transaction volumes likely range from $50 to $70 billion in the medium term,” said Mark Wynne-Smith, JLL’s hotels & hospitality group global CEO. “Watch off-shore capital from Asia and the Middle East continue to play a big role in the coming years. Foreign investors, which have already put $3.2 billion in offshore capital into hotels since 2010; are focused on coastal property, but their interest is slowly moving inland.”