Last year’s $35.3 billion in domestic hotel sales has established a new high water mark — this time for the third straight year. According to a recent report by Jones Lang LaSalle Hotels (JLLH), that volume surpassed the 2005 total by 68%, and nearly tripled the annual volume in 2004. The JLLH database tracks domestic hotel sales $10 million and above.

“Hotels have made another leap toward becoming a more mainstream asset class,” says Kristina Paider, senior vice president of research and marketing at JLLH. “The last five years of strong growth, coupled with the industry’s ability to manage revenues and costs more effectively, has resulted in the ability to better forecast results, and reduce the perceived volatility of the business.”

Paider says that a broad range of new players such as private equity firms, offshore capital, institutional buyers and pension funds are seeking hotel assets. Given their buying power, too, it has only gotten harder for smaller players to snap up individual assets. There were $19 billion in hotel portfolio sales last year, says Paider, and that was almost double the 2005 volume.

“There are so many sophisticated hotel investors seeking deals today,” adds Paider.

Last week, for example, private equity investor JER Partners acquired a 394-room Marriott hotel in Falls Church, Va. for $108.5 million. The property is located within a 2.1 million sq. ft. office park. With little new hotel supply being developed outside of Washington, D.C. today, JER Partners saw the opportunity to secure a stabilized Marriott property near one of the nation’s busiest metro areas.

Lenders still have great interest in these deals, too. With competition to underwrite hotel deals still hot, spreads have tightened and loan-to-value (LTV) ratios have increased. According to Arthur Adler, managing director and CEO of the Americas at JLLH, favorable lending terms are the result of both mezzanine financing and the added liquidity offered by a surging commercial mortgage-backed securities (CMBS) market.

“As the hotel market cycle continues to mature, we anticipate that the transaction volume for the coming year will remain consistent with last year’s record high [but increase to roughly] $35 billion,” says Adler.

That’s why JLLH expects to see many larger hotel portfolios trade at record levels this year. Researcher Kristina Paider also wouldn’t be surprised to see more investors buying and selling assets without holding them for very long.

“I think we’ll see more flipping activity this year than we did in 2006,” says Paider. “I also see more of these mega deals taking place.”