REITs Betting Big on Recovery

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It's a week later, and I'm still thinking about Lodging Econometrics third-quarter transaction trends report: The year-to-date average selling price per room is $107,988, way up from last year's low of $58,190 and not that far off the all-time high of $119,553 in 2007.

That is an astounding climb and almost hard to believe. Many in the industry are still wondering whether the downturn is finally over, but the average price per key has skyrocketed all the way to pre-bubble 2007 levels?

A closer look shows the number may be a little misleading. Even anecdotally speaking, it seems obvious trophy assets are now being traded for top dollar in prime markets, to mostly cash-rich public REITs. But what hasn't increased is the number of smaller transactions, meaning the average selling price is greatly influenced by the recent surge of big-ticket deals.

The volume of transactions isn't up all that much—335 with reported sales prices this year vs. 328 at this point last year—but the locations and prices of those are. Of the 335 transactions, 130 are in top 25 markets, 49 more than last year, and 86 are in central business districts or resort locations, 47 more than last year. And 97 of this year's deals have been for more than $10 million, 52 more than last year.

According to Lodging Econometrics (read the summary of the report here), REITs have spent $1.87 billion in acquiring 46 high-profile properties this year, 10 times the dollar amount they invested last year at this point.

Good news if you own an iconic hotel in a center city location, but what about those owners facing loan maturities for their 110-room limited service properties in the suburbs?

Many around the industry believe the wave of big deals will trickle down to secondary properties and secondary locations as buyers look for better opportunities, which no longer appear to be in major markets as REITs have bid up prices to nearly pre-recessionary levels. At the least, those deals show a renewed level of confidence in the industry and some pretty major bets that recovery is well on its way.

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