Arthur Adler, Managing Director and CEO - Americas
We’re hearing over and over again today that the wave of dramatic RevPAR declines has waned and U.S. hotel operating performance fundamentals have largely hit their trough. I also believe that there is a growing consensus that asset values—ranging from select service properties all the way to luxury hotels—have firmed during the past three to six months. This is laying the foundation for a more congruous understanding of value. It’s no secret that today’s market represents a very opportune time to acquire hotels. Here are three of the primary reasons that we’re hearing investors say they are decisively looking to buy assets.
First of all, prices are well below historic norms. Given that values have declined by as much as 50%, investors are unlikely to find such exceptionally discounted acquisition opportunities for another business cycle. Additionally, buyers can improve yield by acquiring at favorable prices and subsequently refinancing when the capital markets normalize. The bottom line here is that if you buy at a low basis, you have more room for error when you time your exit.
Secondly, the supply pipeline is abating considerably, and this will lead to a more robust recovery overall. In 2010, we expect the number of annual available rooms available to increase by 1.9% (net). In 2011, annual available rooms are forecast to grow by 0.8%, followed by a reduced increase of 0.3% in 2012. These growth rates are considerably below the long term average recorded over the past 20 years.
Lastly, buyers will be able to benefit from hotels’ trimmed cost structures. We’ve heard from some owners that these cost cutting initiatives have resulted in cost per occupied room savings of as much as 5-8% for large urban hotels. A number of cost cutting initiatives will result in long-term savings for hotels. These market dynamics are leading to a very favorable time for hotel buyers.
- Art
