The Americas region will face another challenging year for hotel transactions in 2010 as the market remains hampered by limited debt liquidity, says JLL. Nonetheless, deal volumes are expected to rise to at least $3.5 billion, according to JLL Hotels' Hotel Investment Outlook report, which premiered at the Americas Lodging Investment Summit in San Diego. The increase in transaction volume will be driven by the bottoming-out of RevPAR, the significant amount of equity entering the market and increased pressure on some owners and lenders to sell or recapitalize assets. These factors will result in the narrowing of the bid-ask spread and an increase in seller financed deals.

"This increase will mark the first rise in two years, but is still approximately 40% below the annual volumes recorded from 2000 to 2003," says Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels. "To the extent that several portfolio transactions are completed, transaction volume will exceed the $3.5 billion level."

During 2010, considerable differences in the operating and investment environments of hotel markets across the Americas region will emerge as the market continues to reset itself. In the US, investors will jump back in the market once hotel fundamentals are near the bottom and will be attracted by the significant discount to both replacement cost and to peak values, the report states. In addition, investors recognize that the recovery will be robust due to the operating costs that have been taken out of the business, much of which is sustainable, and the fact that the liquidity crunch will choke-off new supply for the foreseeable future.

"In 2010, there will be more pressure on banks—having already extended loans for six to 12 months—and there will likely be an increase in foreclosure and deed-in-lieu activity, but a tidal wave of distressed buying opportunities is not expected," Adler says.

On the other hand, South America remains largely unscathed by the debt crisis and is expected to lead the way in 2010 in terms of demand fundamentals. "Brazil, Latin America's largest economy, lifted itself out of recession during the second quarter of 2009 and represents the continent's most attractive hotel investment market," says Clay Dickinson, an executive vice president for JLL Hotels.

Colombia, Peru and Chile are favored next. Colombia's operational environment presents some investment challenges, according to the report, as the result of significant increases in lodging supply and the mixed ramifications of this year's presidential election. Nonetheless, economic growth has been robust and transparency in the real estate sector has improved greatly.

According to the report, Peru has shown resilience to the economic downturn and the development of branded limited service hotels represents a growing investment opportunity in the country. Chile has also experienced pronounced increases in lodging supply, but a stable macroeconomic environment and an improving economy is expected to bolster the country's position as a bright spot for hotel investment over the next five years.

While JLL Hotels expects new lending capacity to remain limited in the year ahead, "2010 will mark the early stages of a new lodging cycle; a period when the investment community will start to transition from the year of realization to the year of increasing opportunities."

According to Adler, "Savvy buyers who are in a strong cash position and able to be aggressive will be able to benefit from the select buying opportunities that emerge, and the early movers stand to reap the greatest rewards."

Instant Insights /

Forecast: Hotel Transactions To Increase by 67%

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