Big bump in price, number of trades in the US

NATIONAL REPORT - The LW Hospitality Advisors 2Q24 Major U.S. Hotel Sales Survey revealed the number of trades versus 1Q24 increased approximately 36%, while total dollar volume grew roughly 63% and sale price per room rose 21%. In total, there were 90 single asset sale transactions over $10 million in 2Q24, which totaled just over $4 billion and included approximately 14,350 hotel rooms with an average sale price per room of $279,000.

Year-over-year, the number of trades increased by approximately 7%, while total dollar volume grew nearly 29% and the sale price per room rose by roughly 9%.

Fully, 20 trades, or roughly 22% of the national quarter total number of sales occurred in California, followed by nine sales, or 10% of the national quarter total number of sales occurred in both Florida and Georgia. Combined, 44 trades, or 42% of the national quarter total number of sales occurred in California, Florida, and Georgia.

The $725 million sale of the 450-room Turtle Bay Resort in Kahuku, Hawaii, represented 18% of 2Q24 dollar investment volume. Host Hotels & Resorts acquired the asset, which included a 49-acre parcel entitled for development from Blackstone, for roughly $1.6 million per unit. Host intends to brand the hotel as a Ritz-Carlton affiliate, and as part of the deal, Marriott International “provided key money and favorable modifications on several existing management agreements.”

Three major hotel sale transactions in Tennessee represented roughly $564 million or 14% of 2Q24 total dollar investment volume. One of these transactions encompassed Host Hotels & Resorts $530 million acquisition of the 215-room 1 Hotel Nashville and adjacent 506-room Embassy Suites by Hilton Nashville Downtown from a joint venture that included Starwood Capital Group, Crescent Real Estate and High Street Real Estate Partners.

Twenty major hotel sale transactions in California represented a total of roughly $546 million, or 14% of 2Q24 dollar investment volume. Nine major hotel sale transactions in Florida represented roughly $424 million, or 11% of 2Q24 dollar investment volume.

Copious amounts of debt remain available for the sector as evidenced by numerous recently announced high-profile acquisition financings and property refinancings, including: $112.48 million provided by Blackstone Real Estate Debt Strategies to fund the $171 million purchase of the 390-room Hilton Boston Back in Boston; the $115.1 million loan provided by Apollo Global Management in connection with the $177 million acquisition of the 183-key William Vale in Brooklyn, New York; and the $460 million loan led by Morgan Stanley, Deutsche Bank and J.P. Morgan for the $705 million acquisition of the 705-key Arizona Biltmore in Phoenix.

LW Advisors said the much-anticipated wave of debt maturities has slowly commenced, with many capital-starved hotels under brand pressure to now execute PIPs. Property owners that utilized Reserve for Replacement funds to service debt during the past four years are now faced with refinancing in an elevated interest rate environment. LW Advisors believes many owners will elect to dispose of assets, while others will “hand keys” to their lender(s).

Creditors are in the business of obtaining market returns on debt financing, not owning commercial real estate, which in turn will result in increased hotel sale transaction activity, according to LW Advisors. They said this phenomenon may be lessened if the Federal Reserve lowers borrowing rates which would ease refinancing efforts of existing sponsors.

Additionally, LW Advisors said, a narrowing of credit spreads in Single-Asset Single-Borrower Commercial Mortgage-Backed Securities (SASB CMBS) has positioned such financing as favorable for large institutional lodging assets with a history of strong performance and cash flow.

“Compared to other asset classes, hotels present very attractive investment opportunities,” said Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors. “High-quality assets with strong in-place performance are trading at aggressive cap rates driven in part by ample equity earmarked to the lodging sector. In addition to forthcoming debt maturities, equity fund life expirations will drive increased hotel sales activity. Sale pricing of U.S. hotels is anticipated to remain robust for top-tier properties with in-place cash flow while reduced valuation opportunities may only be available for complex and/or less desirable assets.”