2004 Hotel Sales Shaping Up as Record-Breaking Year

"I think 2004 will be the largest number of hotel transactions in the history of the hotel business," Thomas J. Corcoran Jr., FelCor's president and CEO, tells GlobeSt.com. Eight months of positive RevPAR have set up the year to be a record breaker, he says.

In recent days, Jones Lang LaSalle Hotels reported 58 hotels, priced at more than $10 million, were sold in the first six months, banking $7.3 billion for sellers. The 72,886 rooms that sold brought an average of $100,698 per key. The volume for single-asset hotel sales doubled in the past year, the Jones Lang LaSalle Hotel's Chicago research team reported. And it's predicting the volume will hit $10 billion by year's end or 48% higher than 2003 and nearly three times 2002's total.

The newly released report attributes the high volume to number and types of buyers; amount of equity chasing hotels and availability of favorable debt; and increased interest by owners to bring properties to market. "However, there are still not enough assets on the market to satisfy the enormous weight of the capital in the system," Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels, says in a press release. "All active indicators suggest that the US transaction volume will continue to rise throughout 2005."

FelCor started its push to sell in 2000 and expects the last one of 71 labeled non-strategic to be sold by yearend 2005. Since it started selling, FelCor has bought just three times--not once in Texas. And when it does buy, the deeds most likely are going to be in Southern California, the Northeast and Washington, DC, Corcoran says. "We are starting to build a pipeline of opportunities," he confides. "I think we'll start buying late this year or early next year...but it won't be a ton of buying."

Corcoran says the buyers "are playing the cycle. They are recreating what people perceive as the buying opportunities of the '93-94 timeframe and buying in the low end of the mode." He, like the hotel group's researchers, says this year's top buyers have been public companies. The research showed public companies were in fact on the buy side for 49% of the trades so far this year.

FelCor's strategy, Corcoran says, is to swap tertiary markets for urban and resort areas while reducing its risk of having too many Texas hotels in the portfolio. Four years ago, the portfolio included 44 Texas properties; it will be half that amount when 2005 ends. "Texas is difficult...low occupancy, easy entry for people who want to build. Supply is plaguing Dallas, but that's true of most real estate groups in Texas, not just hotels," he says. "The blessing of Texas is it's one of the greatest entrepreneurial states in America. The curse of Texas is it's one of the greatest entrepreneurial states in America. There is no governor on it."