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CHICAGO-US hotel sales for 2006 were $35.3 billion, an increase of 68% from $21 billion in 2005, according to a recent report on national hotel investment by Jones Lang LaSalle Hotels. The company tracked all hotel sales of $10 million and higher. Last year was the third year in a row of “record transaction volume for the hotel industry,” says Kristina Paider, senior vice president of research for Jones Lang LaSalle Hotels. The largest hotel transaction was the sale of the Four Seasons Hualalai for $502 million, she says.

The increase in sales is due to both an increase in the number of hotel sale transactions and an increase in the sales price. The growth is due to many factors, including high and increasing operating returns, more and diversified buyers, an increased ability to obtain financing and a limited amount of newly constructed hotels, according to the report. “Many choose to buy and renovate over building because of those high [construction] costs,” she says.

There is a greater “transparency” regarding hotels’ operating results, which allows investors, who may not have a lot of experience with buying and managing hotels, to enter the market, according to the report. “Hotels are seen as becoming more of a mainstream asset class,” Paider says. More hotels are also entering the marketplace as some of the publicly held companies involved in hotel real estate are selling the hotel buildings but continuing to operate the hotel. “They are moving to an owner-operator structure,” she says.

A recent trend is groups of buyers pooling their resources to buy large hotel portfolios, which is something Paider sees continuing. Hotel portfolio sales reached $19 billion last year, which was nearly double the 2005 amount. “The trends that will drive the next couple of years are flipping, with those shorter hold periods, and mega deals,” she says. “Private equity players pool their capital to enable them to compete for these bigger deals without the competition.”

There may not be the record increases this year with hotel transactions, but Jones Lang LaSalle expects the transaction volume to be similar to 2006. “It really still is a sellers market as well as a buyers market and it that dynamic that makes this growth able to sustain itself,” Paider says.

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