Hotel sales volume hit a record high of $21 billion in 2005, far outstripping 2004’s previous record of $12.9 billion. Jones Lang LaSalle Hotels reports that this record volume even surpasses the previous highs during the REIT boom of 1997 and 1998.

“The appeal of hotels as an asset class and subsequent strength in capital market activity is due to a combination of factors: strong industry fundamentals, controlled levels of new supply, high availability of both debt and equity capital, favorable risk-adjusted returns, a lackluster stock market and an overwhelmingly optimistic outlook for the lodging industry,” says Arthur Adler, managing director and CEO-Americas for JLLH.

Public companies represented the largest seller class in 2005, disposing of $8.5 billion in assets, roughly 41% of all transactions. Meanwhile, opportunity/private equity funds were the second largest seller class with 34% of total disposition volume.

“The trend of public companies moving away from the business of real estate ownership, and moving their focus on hotel and brand management is prevalent in the U.S. as well as internationally,” says Kristina Paider, director of marketing and research for JLLH.

Portfolio transactions amounted to $9.6 billion in 2005 with single asset transactions reaching $11.4 billion. According to JLLH, single asset transactions commanded a higher price per key relative to portfolio deals with a 48% premium to the latter at $178,279 versus $120,737.

Capitalization rates also exhibited record lows for 2005. The average cap rate on 60 separate transactions on which JLLH has cap rate data, representing $3.1 billion in deals, was 6% in 2004.

Adds Adler of JLLH: “The expectation of further improving fundamentals and increasing depth of capital will stimulate a similar level of transaction volume in 2006 and into 2007.”