PORTSMOUTH, NH—Strong competition among large-scale buyers has helped fuel double-digit increases in per-room selling prices for hotels. Lodging Econometrics reported last week that average selling price per room soared 28% year-over-year to $150,223 per room in the first half of 2014, compared to $117,300/room in 1H 13. Prices for the first half of this year were also up 17% over the year-end average of $128,352 for ‘13.
“A complete economic recovery, a forecast for continued steady economic growth, receptive capital markets and a docile pipeline make it an interesting time for investors,” according to Portmouth, NH-based LE’s mid-year forecast. “Based on the makeup of their portfolios, it could be an ideal time to be both a seller of hotels, or conversely, an acquirer of additional assets. It could also be opportune to be a holder of existing assets seeking additional operating improvement and asset appreciation too.”
Competition is especially strong for higher-end assets,, as REITs and private equity groups with similar investment objectives vie for larger properties in the CBDs of major cities. The competition has been similar for hotels in the top resort destinations, which have been a little slower to recover. “As a result, these assets still have considerable earnings and appreciation potential ahead,” according to LE..
LE reports that, proportionaely, sales of hotels larger than 200 keys have more than doubled Y-O-Y. “Transfers in the luxury, upper upscale and upscale chain scales are up 57% and hotels in CBDs and resort locations are up 39%,” the reports tates. “It’s a major shift towards institutional type quality assets.” Selling prices are at record highs for luxury, upscale, upper midscale and midscale sectors and at CBD, airport and major suburban locations.
The three highest priced markets for the year’s first half were New York City at $619,154 per key, San Francisco at $383,924 and Miami at $363,294. LE cautions that although this metric provides a useful guideline, “sample sizes are small and valuations are always hotel- and location-specific.”
In a report last week from MLV & Co., Ryan Meliker, managing director, equity research, REITS & lodging, offered some metrics indicating that while pricing in institutional-quality CBD assets is making the biggest gains, the suburbs are seeing faster growth in revenues. Urban RevPAR rose 6.6% in the second quarter, while suburban was up 8.8% in Q2, compared to Q1 results of up 5.3% and 8.1%, respectively. “We estimate the top markets in Q2 were Nashville (+19%), Tampa (+17%), Boston (+13%) and San Diego (+13%),” Meliker wrote.
For the majority of lodging companies which MLV covers, Q2 RevPAR tracked ahead of management’s guidance, “with several companies exceeding these ranges,” Meliker wrote. Marriott International appears to have fared best in this regard, tracking 25 basis points above MLV’s estimates, while Sunstone Hotel Investors topped the research firm’s estimates by 140 bps.
According to Fitch Ratings‘ US gaming, lodging and leisure group, RevPAR performance for US hotels accelerated during Q2, outpacing forecast estimates by a strong margin. “STR Global‘s weekly RevPAR data indicates RevPAR gains of approximately 7.5% through June 28, compared with Fitch’s initial 2014 forecast of 5.5% assigned late last year,” according to Fitch.
Fitch also expects improved group demand to translate into stronger ADR growth for the sector. On the other hand, Fitch notes that RevPAR within the group demand segment decelerated modestly in Q2 to the low mid-single digits from the high-single digits during 1Q. “Notably weak markets” for group demand in Q2 included Washington, DC; Chicago; the island of Oahu; and Atlanta.