For the first time in two years, hotel transactions may finally be on the upswing. In a new report, Jones Lang LaSalle Hotels forecasts that global hotel transaction volume will increase next year by 20% to 40%.
The brokerage and real estate services firm projects that transaction levels could reach $11 billion to $13 billion in 2010, up from an estimated $9 billion worth of
Asian investors are expected to play a key role in the investment surge, as they scout for buying opportunities in the United States and Europe.
Across the world, the trading of single hotel assets will initiate the recovery, said Arthur de Haast, global CEO of Jones Lang LaSalle Hotels. “Entrepreneurial transactions that can be financed regionally or locally will be the first to re-enter the market.”
The projection is encouraging after the anemic showing of 2009. For the year, projected deal volume is down 64% from 2008, when $24.8 billion in hotel transactions were recorded. In its 2010 investment outlook, Jones Lang LaSalle said transactions were expected to rise after hitting the lowest level in a decade.
Single asset deals will be particularly attractive to investors shying away from big portfolio buys, according to de Haast. “Equity-rich opportunistic buyers will also look at select larger single-asset transactions in global gateway markets, but our 2010 volume forecast assumes there will be few substantial portfolio transactions in the new year.”
Sovereign wealth funds re-emerge
Asian investors are expected to play a pivotal role. “Asian conglomerates are poised to emerge as one of the primary global acquisition groups in 2010 as they seek prime assets in gateway markets, especially in the United States and the United Kingdom, playing to currency fluctuations,” de Haast said.
Sovereign wealth funds from the Middle East and Asia are expected to re-emerge in the market, investing in hotels as a hedge against inflation.
However, apart from the Asian conglomerates and Middle Eastern investors, buyers are expected to be risk-averse and to prefer their home markets.
As of Dec. 10, cross-border activity amounted to just 38% of total capital invested globally in 2009, and that figure is not expected to change by the end of the year. It represents a substantial drop from 2008, when cross-border activity reached 48% of transaction volume.
In 2010, cash buyers will be in the best position to capture investment deals. However, with traditional loans scarce, new investment vehicles have sprung up to help hotel borrowers, propelling deals that might not otherwise have occurred in this credit-strapped environment.
Public stock offerings and mortgage and equity REITs will also drive acquisitions, according to de Haast. But deal volume is expected to be far lower than during the market peak of 2007, when commercial mortgage backed securities were readily available.
Lenders sell more troubled assets
Worldwide, the hotel market is suffering significant stress, and lenders have offered workouts to many strapped borrowers as they try to recapitalize debt rather than foreclose.
Still, more troubled assets are expected to fall into lenders’ hands. “As more assets are placed under the control of banks, we expect more of the upcoming sales activity to be driven by banks, which will provide a lift to hotel transaction volumes. But the number of
The pace of recovery is expected to vary across global markets, as investors look for at least three consecutive months of year-over-year room rate and occupancy growth. After a year of frozen liquidity and stalled transactions, 2010 will bring improvement, according to Jones Lang LaSalle.