U.S. Hotel Deals Down 81% in H1 2008, Reports Jones Lang LaSalle Hotels (United States)
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U.S. Hotel Deals Down 81% in H1 2008, Reports Jones Lang LaSalle Hotels (United States)
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Category: North America & West Indies / Carribean islands - United States - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2008-08-21
Jones Lang LaSalle Hotels Releases Mid-2008 Hotel Investment Highlights Report
Jones Lang LaSalle Hotels announced today that the volume of U.S. hotel transactions for the first six months of 2008 declined 81% from the same period in 2007, reaching $6.0 billion. According to Jones Lang LaSalle Hotels’ proprietary database, which tracks transactions $10 million and above, first quarter 2008 transaction volume was relatively stronger at $3.4 billion, whereas the second quarter saw $2.6 billion in deal closings.
“Illiquid debt markets and economic uncertainty have U.S. investors generally taking a “wait and see” approach,” said Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels. “While the drop in U.S. transaction volume is pronounced, it is not far below the volume recorded in the first half of 2004 and 2005. The full-year 2008 U.S. volume is expected to come in somewhat below the 2004 total, in the range of $10 to $12 billion.”
“REITs gained the most ground on the acquisition front in the first half of 2008, and were the largest net buyer of hotel assets, reflecting a shift from debt-driven transactions to more traditional real estate investment deals,” said Kristina Paider, senior vice president of marketing and research for Jones Lang LaSalle Hotels. Highly leveraged investors such as private equity firms bought assets worth $998 million in the first half while disposing of $1.27 billion in assets, making them net sellers. “European investors bought eight U.S. hotels in the first half of 2008, in transactions amounting to $533.6 million, indicative of foreign investors’ interest in assets in U.S. gateway markets,” said Paider.
Portfolio transactions accounted for 75% of deal volume in the first half of 2007, but decreased to 48% of transaction volume in the first six months of 2008 as the restricted debt markets made it difficult for larger transactions to get off the ground. “Individual deal size also decreased. Through mid-2008, five single asset sales exceeded the $100 million mark, down from 19 in the first half of 2007,” said Paider.
With CMBS originators in the background, balance sheet lenders such as life insurers, regional banks and pension funds are now the most active first mortgage lenders for hotel investors in the U.S. LTV ratios have shrunk and debt coverage ratios have expanded, resulting in an increase in the amount of equity required to fund a transaction and an increase in the weighted average cost of capital. This, combined with the weakening industry fundamentals has placed upward pressure on capitalization rates.
“Nevertheless, as evidenced by the successful execution of several high quality deals, the markets are indeed open and appetite remains among lenders for well-sponsored assets in good locations,” said Adler.
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