This compares to 1% in 2000. They have been able to capitalizeon a trend in the industry as hotel groups sought to shed assets,mainly through sale/leasebacks, to focus on management andoperation of hotels. These disposals have appealed to funds--including those run by Morgan Stanley, Lehman Brothers andBlackstone--which have been able to buy hotels on higher yieldsthan office or retail.

Recent deals have included the $3.2-bilion sale of Société duLouvre to Starwood Capital and the $1.9-billion acquisition ofIntercontinental Hotels' UK portfolio of 73 hotels by LehmanBrothers and the Government of Singapore. Blackstone spent $790million in March on the purchase of Hospitality Europe. The trendhas seen a massive diversification in ownership patterns, says thereport. So, in Paris, for instance, 21% of hotel rooms are owned byAmericans, 8% by Middle Eastern investors and 13% by (non-French)Europeans.

But private equity groups are "not long-term holders of realestate" and are likely to exit, says the report, with a publicflotation, the most attractive method. It adds that theintroduction of REITs in the UK and Germany increases thelikelihood of this happening. "Property companies and privateequity firms are expected to explore the possibility of exiting viathe REIT market now that the legislative process has begun inGermany and the UK," the report says.