Pricing spreads between buyers and sellers are narrowing. Simultaneously, the inventory of attractive opportunities remains fairly constrained given the reluctance of lenders and others who control assets to dispose of them at today's depressed pricing levels. Savvy, well capitalized investment groups, with lodging industry expertise, have raised pools of funds for opportunities where the risk-reward profile has the potential to provide significant earnings and capital appreciation. It is anticipated that there will be desirable investment opportunities at all levels of the hotel capital stack. Such prospects include: origination of a myriad of lodging real estate loans, the acquisition of performing and non performing hotel loans, structured mezzanine positions, and direct investment in individual assets and portfolios of hotel real estate. Similar to the rebound from prior downturns, investors are seeking opportunities to inject capital in addition to acquisition costs, and to turnaround, reposition and/or rebrand distressed hotel assets with the goal of achieving maximum capital appreciation and, to a lesser extent, current income.

The CB Richard Ellis (CBRE) Valuation & Advisory Services Hospitality & Gaming Group continuously monitors the major U.S. hotel sale transaction market. In Q1 2010, the CBRE Major U.S. Hotel Sales Survey, which looks at single lodging asset sales over $10 million each that are not part of a portfolio allocation, identified 14 transactions. These transactions total $710 million, and include 5,000 hotel rooms with an average sale price per room of $140,000. By comparison, the Q1 2009 survey was never published due to the dearth of transactions.

Notable observations from the Q1 2010 CB Richard Ellis Major U.S. Hotel Sales survey include:

The $200 million sale of the 2,129 room Tropicana Casino & Resort in Atlantic City, NJ, by an investor group led by Carl Icahn, represents the largest trade for the period. The transaction, which took a significant amount of time to close, is perceived as a "bargain basement" price effectuated by a legendary value investor, and may be an indication of the market bottoming.
The $60 million sale, out of foreclosure, of the 469 room Los Angeles Marriott Downtown at roughly half the $115 million price it garnered in 2007. The deal is yet another data point that supports the notion that, broadly speaking, U.S. hotel asset prices today are +/-50 percent lower than peak levels of just three years ago.
LaSalle Hotel properties (LHO) acquired the Sofitel Lafayette Square in Washington DC at a reported sub six percent capitalization rate on in place cash flow, and a similar rate of return based upon 2010 projections. The transaction is illustrative of the perceived upside of urban hotel assets in top U.S. markets.

The hotel industry notoriously experiences remarkable highs and dramatic lows. Sensing limited downside at this point, smart opportunistic money is positioned to acquire assets now for the ride up to the next high. I believe that journey will be as swift and striking as this last ride down.

Daniel Lesser is the senior managing director of the Hospitality & Gaming Group at CB Richard Ellis (CBRE) based in New York City. The views and opinions expressed in this article are the author's own.

Instant Insights /

US Lodging Industry Q1 2010: Point of Inflection

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