—As one of the hardest hit asset classes during the recession due to diminished capacity from leisure and incentive group travelers, the resort sector has dramatically improved this year accounting for 18.4 percent of total investment transaction volume in the hospitality sector. The $2.46 billion of transactions through year-to-date August2013 marks the highest volume in the segment since 2007 and more than triple the prior-year period.
The U.S. resort sector represents 13 percent of the total U.S. hotel room supply, comprised of more than 3,900 hotels with 608,000 rooms. The resort market’s revenue per available room (RevPAR) and average daily rate (ADR) have surpassed the previous 2007 peak with average RevPAR of $102.99 and average ADR of $153.81 through YTD August 2013. The market has room to grow with occupancy nearing the prior peak, and a constricted new supply pipeline. Additionally, resorts in the U.S. often have net operating income per available room that is 1.5 to 2.0 timesthe income that a standard full service hotel brings to the bottom line, and investors are taking note.
“Given the intense capital requirement of building a new and competitive resort, as well as the lack of financing for such developments, there are few new four-and-five star resorts under construction. The muted development is driven by the stringent entitlement processes, minimal developable land and the rising cost of materials. These factors are pushing down cap rates on existing well-positioned, cash-flowing resorts as competition increases,” Art Adler, Americas CEO of Jones Lang LaSalle’s Hotels and Hospitality Group. “The steady improvement in the market will result in a lengthier and more robust up-cycle, providing new owners with significant runway of strong operating performance.”
Even though the resort market is taking off, not all assets are ready for the flight. During the downturn, hotels, particularly resorts, held off on renovations. Now that the market is rebounding, owners have the capacity to add amenities and create a more differentiated product. “Aside from attracting and retaining their customer base with a repositioned physical plant and new recreational amenities, owners who are able to go-to-market in the next three years with renovated product can capitalize on the upswing, and the lower cost-of-capital offered by REITs and offshore investors seeking to enter the resort space. Private equity funds also have their eyes on value-add resort acquisitions,” added Gregory Rumpel, managing director of Jones Lang LaSalle’s Hotels & Hospitality Group.
Recent resort trades include the Miami Beach Resort, the Pier House Resort and Spa Key West and the Park Central Miami Beach. Jones Lang LaSalle is currently in the market with the Ritz-Carlton, Kapalua Resort among other high-profile resort properties.
Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select-service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hospitality real estate advisor in the world totaling nearly $25 billion, while also completing approximately 4,000 advisory and valuation assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.
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Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management.
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