Hilton Orlando

ORLANDO—Forty-two hotels changed hands in Orlando in 2012. That’s up from 38 in 2011. So says a new study from HREC Investment Advisors that covers more than 500 hotels located in Orange, Osceola, Seminole, Polk, and Lake Counties.

According to the HREC study, 71% of the hotel transactions in 2012  were “single-asset sales” versus 55% in 2011. Of the remaining transactions, six hotels traded as part of a portfolio sale or as a result of mergers and acquisitions activity—up from two in 2011. Two hotel properties traded thorough foreclosure sale to a third party—down from seven in 2011. And four hotel changed hands through foreclosure—down from eight in 2011.

“Within Central Florida, the market has been very efficient in working its way through a significant number of highly distressed hotel assets,” says Paul Sexton, head of HREC’s Orlando office. There are still lender controlled assets in the market, but they are being held primarily because valuations continue to rise.”

For single-asset transactions, aggregate sales volume in 2012 was $240 million vs. $163 million in 2011. Further, in 2012 roughly 40% of all hotel single-asset sales were “non-distressed,” which was up from 29% in 2011. The remainder of the sales in each year resolved a distressed situation.

By sub-market, the International Drive area has been the most active over the past two years with combined transaction volume of $128 million. Lake Buena Vista ($83 million) and Orlando Central ($79 million) followed.

“From a regional perspective, we expect to see a greater volume of higher-quality asset sales in 2013,” says Scott Stephens, HREC’s COO and Southeast practice leader. “This trend will be fueled by an accelerated return of the capital markets, especially with regards to the availability of CMBS financing.”

The HREC study suggests that the Greater Orlando market has reached an inflection point whereby values are rising due to both improved operating performance and significantly less overall market risk. As consequence, investment yields are starting to soften.

“The missing piece of the Central Florida hospitality sector puzzle is the lack of lending activity by local commercial banks,” says Sexton. “We would love to see the area’s community banks become bigger participants in this truly incredibly recovery.”