US Hotel Deal Pace Going Strong

CHICAGO—In the first trimester of 2018, US hotel transaction volumes reached more than $11.9 billion – a 93% increase over last year, according to preliminary figures recently released by Chicago-based JLL. Investors were most interested in South FL and West Coast properties, including ones in Hawaii, resort properties, and portfolios of prime full-service hotels. The company partly attributes the buying spree to an acceleration in performance growth.

“Going into this year, we were hopeful that the improving economy and strong employment trends would translate to an acceleration in RevPAR,” says Arthur Adler, chairman for JLL’s hotels and hospitality group. “Since March, that is exactly what has happened. Investor sentiment has markedly improved based on the widely held belief that demand will outstrip supply for the foreseeable future resulting in stronger pricing power and solid profit improvement.”

And these improvements have occurred in most major markets. Twenty-two out of the top-25 markets studied show positive trailing twelve-month growth in revenue per available room (RevPAR). Chicago and New York, for example, which experienced two consecutive years of flat to negative RevPAR increases, are now stable or notching positive growth.

Furthermore, public and private REITS, private investors, family offices and offshore investors all have a lot of available capital for acquisitions, according to JLL. As reported in GlobeSt.com, Chinese buyers have been quite active as well.

“The acceleration of GDP and RevPAR marks a key turning point for investors, who are now convinced that this will be an extended cycle. Recent earnings calls have been resoundingly positive,” Adler adds. “Investors are now firmly in the camp that this will be an elongated cycle, therefore, they are positively pre-disposed to investing in lodging compared to other forms of real estate.”

South FL has been the year’s standout market, and still has many other deals in the pipeline, and JLL says the bids on Miami and other FL hotels are meeting or exceeding seller expectations. The firm expects hotel sales in this market to reach $2 billion by the end of 2018.

If that happens, South FL would surpass the recent peak of $1.4 billion achieved in 2015 and make up for a rough couple of years including the uncertainty brought by the spread of the Zika virus in 2016.

“Florida keeps doing what it’s doing,” says Gregory Rumpel, managing director for JLL’s hotels group. “With people moving in, HQs moving in, there is only a good prognosis. Businesses don’t like heavy taxes in other southern markets. We offer a great atmosphere – that is, on a relative basis, affordable.”