Worldwide investment sale volume of full-service hotels is on track to exceed $60 billion in 2006, a new record that would outstrip by 33% the previous record volume of $45 billion set last year, reports Jones Lang LaSalle Hotels. This year’s sales through the end of June totaled $41 billion.
“Anticipating a slight supply shortage, we had expected to see similar levels to last year, but we certainly did not expect to get close to 2005 levels in just six months,” says Arthur de Haast, global CEO of Jones Lang LaSalle Hotels.
Even last year’s volume represented a dramatic increase of 67% from the previous year, de Haast says.
Driving that volume is an abundant supply of capital seeking real estate, relatively inexpensive debt, the emergence of private equity firms as both dominant owners and now sellers of hotels, and the relatively less attractive returns available from other real estate classes. Continued uncertainty in equity markets is also boosts the appeal of full-service hotels, according to Jones Lang LaSalle.
Europe and the Asia Pacific region are expected to experience an even stronger second half of 2006. All regions have enjoyed increased activity, but the United States drove the bulk of volume in the first half of this year.
Investor interest in hotels is increasing, with prospective buyers outnumbering sellers by nearly three to one, de Haast says. According to a survey the company completed recently, both initial yields and IRR expectations have been steadily declining since 2001, “reflecting investors’ greater understanding and appetite for hotel transactions and their increased confidence in key emerging markets in Asia and Eastern Europe.”
High-dollar deals are helping to drive record deal volume. This summer, Dell Computer founder Michael Dell, his family and Rockpoint Group LLC acquired the Hualalai Resort in Hawaii from Kajima Corp. The exact price wasn’t disclosed, but Jones Lang LaSalle Hotels arranged the buyer’s financing and described the total capitalization as “nearly $1 billion.”
“The transaction represents the largest reported hotel sale in Hawaii history, and the second largest publicly reported sale in U.S. history, second only to the Plaza Hotel in New York in 2004 for $675 million,” says Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels.