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Five Reasons Hotel Investment Activity Should Increase

Feb 4, 2013

At the Americas Lodging Investment Summit (ALIS), Jones Lang LaSalle of Jones Lang LaSalle’s Hotels and Hospitality Group revealed five forces that will push the hotel investment market in the next five years.

Bust or boom: Foreign investors, particularly from the Middle East and Asia, have put $3.2 billion in offshore capital into American hotels since 2010. Predictions do not show a decrease in global deal volume. Rather, global deal volume is in line with the most recent three-year average, with a predicted high of $33 billion this year, and could rise anywhere from $50 billion to $70 billion in the medium term.

Hotel transaction level drivers: Accounting for half the global deal activity with strong fundamentals, expectations for the U.S. depend on improved industry fundamentals, the availability and cost of capital, and REIT stock prices. Other factors impacting the transactions volume include the amount of product on the market and the composition of hotel ownership.

Cash is king, but debt is on its way back: The CMBS market returned with improved pricing and terms for borrowers and also drew other lenders into hospitality. As domestic and offshore banks, insurance companies, debt funds, and mortgage REITs augment the increased CMBS lending, debt availability should reach a six-year high.

Increasing hotel value: With the rebound of top-line revenue, hotel owners will avoid profit erosion and maintain asset value by emphasizing revenue management and analytical tools. Competition for third-party travel agents and traveler loyalty will increase but will challenge operators and be costly. Hotels will have to invest in digital marketing and online travel agencies to stay apace with other distribution channels.

Latin America expectations: Latin American economies are projected to grow by four percent annually through 2020, and the region’s global GDP share is expected to increase by 25 percent from 2000 to 2020. The area will grow in the lodging sector with major events such as the 2014 FIFA Soccer World Cup and the Summer Olympic Games in Brazil. At the forefront of the increase are Brazil, Mexico, Columbia, Peru, and Chile.

Overall, hotels should remain as a favorable asset among lends, institutional, and offshore investors. With debt becoming more available and competitively priced, asset values and transaction volume are expected to rise.
“There will be a significant amount of property coming to market in 2013 from a combination of the de-leveraging occurring as fifty-five billion dollars of CMBS matures in the next few years and we’ll see investors who bought earlier in the cycle want their capital gains and they’ll sell,” says Arthur Adler, Americas CEO of Jones Lang LaSalle’s Hotels & Hospitality Group. “You can’t underestimate the composition of hotel ownership over a long period of time as many hotels today are in the hands of traders versus holders.”

hdtalks: the interviews

During HD Expo 2014, Hospitality Design’s Michael Adams sat down with HBA’s Michael Bedner to talk about his half-century in the hospitality design industry. View the video.



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