Big Apple grabs big chunk of total hotel sales

NATIONAL REPORT — While lower-priced deals dominated the overall hotel transactions data for the third quarter, the New York City market featured some high-profile sales, showing that debt costs aren’t scaring away motivated buyers.

The market leads the U.S. in sales for the last three months ending on November 13, according to CoStar data provided exclusively to Hotel Investment Today.

Top 10 hotel markets by sales

Note: CoStar’s California North market includes Eureka/Crescent City, Napa Valley, Redding/Chico, Santa Rosa/Sonoma and Vallejo/Fairfield/Vacaville; its Colorado Area market includes Boulder/Longmont, Colorado Ski Area, Fort Collins and Loveland; while its Inland Empire market includes Ontario and its airport, Palm Springs and Riverside/San Bernardino.

Price not the biggest issue

“More significant high-priced hotel transactions signify that for motivated buyers, financing costs are not as important a consideration as the location or a strategic rationale to own a property,” said Jan Freitag, national director for hospitality market analytics at CoStar.

Jan Freitag

The nine transactions for the New York City metro area total $1.35 billion in sales, which comprises 45% of the over $3 billion in sales for all of the top 10 markets. Seven of the deals are over $100 million, including five in the Midtown West/Times Square submarket of New York City.

The two largest sales in the New York City market were the Park Lane Hotel, which was purchased by the Qatar Investment Authority for nearly $623 million and a triple-branded Hilton hotel (400-key Motto, 288-key Home2 Suites and 358-key Hampton Inn at 150 W. 48th Street), which sold for $470 million.

Freitag said these sales point to the continued interest by investors for luxury properties in prime locations (in the case of Park Lane Hotel) and for mid-block limited-service hotels since there is very little new competition after the existing pipeline opens (in the case of the triple-branded Hilton.) Freitag also mentioned the effect of Airbnb's  inventory shrinking in New York City after the city’s most recent ordinances.

“New York City has recovered remarkably well after the pandemic, and demand from leisure, corporate transient and group customers is healthy. ADR growth in the city has also been strong, which gives investors conviction to invest,” Freitag said.

Boston was second on the list with five sales for $440.8 million. Orlando was third with 17 sales for $238.5 million. Chicago had the most sales of the top 10 markets, with 31. Chicago’s total was $140.3 million, ranking it sixth.

Colin Sherman

According to the data, activity over the last 90 days reflects a decreased amount of sales activity over the same period in 2022. While the total disclosed U.S. hotel sales value in 3Q23 ($6.3 billion) was higher than the first two quarters of this year ($6.1 billion in 1Q23 and $5.4 billion in 2Q23), the total was down 31% from the same quarter in 2022. Freitag said the deals had mostly lower-priced amounts by private buyers.

The total volume of disclosed hotel transactions is down significantly over the first three quarters of 2023 compared to the same period in 2022. Through the first three quarters of 2023, the transaction total was $17.9 billion, down 63.3% from the first three quarters of 2022 ($48.8 billion.)

While Dallas continues to be the leading market for hotel pipeline construction in 2023, the market does not appear on the top 10 list for hotel transactions. Colin Sherman, director of hospitality analytics for CoStar, said debt factors continue to slow transactions in some markets.

“As operating fundamentals improve, investor interest in Dallas remains strong,” Sherman said. “However, the cost and availability of debt have hindered some hotel transactions over the year. Macroeconomic headwinds from rising interest rates have impacted hotel trades, causing some investors to hold till economic conditions improve.”