Arthur Adler, Managing Director and CEO - Americas
The market has changed dramatically since the Americas Lodging Investment Summit in January. In this morning’s session “Going for Broke: Transactions Update,” I discussed with fellow panelists which assets are moving in today’s market and which investors are most active.
The panel’s moderator asked the participants whether they are bearish or bullish on the outlook for hotel transactions. Consistent with the views expressed during the conference, all of us said that we’re bullish for 2010 and beyond. I expect the U.S. lodging industry to see a strong run of positive RevPAR growth for the next four to six years. Supply has always been what’s killed the industry, but this is of much less concern for this recovery period.
How are assets being shopped today? A common theme stated on this panel (and others during the conference) is that buyers are looking for quality, branded assets in the country’s key coastal gateway markets. Prospective buyers are looking at price per key and discount relative to replacement cost to determine the intrinsic value of assets. Full service transactions are getting done at low cap rates. Buyers are commonly looking at a five to seven year hold. You’re getting a lot of lookers. Sure there are still bottom-fishers out there, but there are also increasingly competitive bids.
Full service assets are being looked at by a number of domestic groups such as REITs and institutional buyers. In second-tier markets, we’re also seeing high net worth investors and private equity groups. Many of the domestic buyers are all-cash buyers. Panelists concurred that in terms of international buyers, we’re presently seeing more groups from Asia than from Europe and the Middle East. Asian groups usually are long term holders, have a lower cost of capital and are aggressively targeting investments in U.S. safe haven markets.
What I think is a key shift in recent months is that following two years of hunkering down and maintaining an internal focus, corporations are increasingly growing their external focus and traveling more. Overall, the panelists agreed that the improvement in hotel fundamentals and the uptick in transaction volume will represent an evolution, not a revolution.
- Art
