Cross-border investment surging: JLL

GLOBAL REPORT - Global cross-border hotel investment is surging and should accelerate further, according to a new report from JLL Hotels & Hospitality.

Cross-border hotel investment, which has been largely absent over the past three years stemming from widespread border closures and geopolitical volatility, has reemerged in 2024, reaching its highest YTD May total since 2021, according to JLL. Private equity investment into Europe and the U.S. drove the bulk of liquidity.

Look for family offices from across Asia, private equity groups from the U.S., and Sovereign Wealth Funds from the Middle East to be increasingly acquisitive in the coming months, particularly as interest rates remain elevated.

JLL said urban markets in Europe and select U.S. cities will likely be the largest recipients of inbound foreign capital, with must-have assets in the luxury segment to garner the most investor interest.

Hotel Investment Today spoke to Zach Demuth, JLL’s global head of Hotels Research to get more insight.

Hotel Investment Today (HIT): Are these investors looking for value plays or more trophy assets at higher prices? What has pricing been like and have bid-ask spreads been challenging?

Zach Demuth: The trend thus far has skewed towards trophy assets but we’re starting to hear more about foreign investors looking for possible distress opportunities which thus far have been somewhat limited. Our view, though, is that luxury will remain the most in favor and we expect to see more of a push towards must-have urban assets, particularly across Europe.

Pricing generally remains high which is partly attributable to the nature of these assets (arguably iconic and irreplaceable) as well as the capital stack of many foreign investors which generally has a lower cost of capital or is less reliant on debt.

HIT: Why has this trend reemerged, and will it continue in 2025?

Zach Demuth, JLL

Demuth: The full reopening of borders was a big impetus to the reemergence of foreign capital. While borders have been fully reopened for about a year, it takes time for capital to finally come off the sidelines. Further, many of these investor types (Sovereign Wealth Funds, in particular) are less reliant on leverage and thus can be more aggressive/nimble when interest rates are high. We’ve typically seen these investor types most active in otherwise challenging markets. Our expectation is that foreign investment will continue to accelerate throughout 2024 and into 2025.

HIT: Are these investors looking for unencumbered assets to reflag or take independent, or are there any other criteria they need to make a deal?

Demuth: It’s very dependent on the market and asset. Currently, must-have assets with in-place cash flow are garnering the most interest.

HIT: What else is worthy of note about your findings?

Demuth: A big catalyst to the reemergence of foreign capital is the deceleration of organic new supply driven by high construction costs in most markets around the world (the Middle East and Greater China are two exceptions).

As such, we’ve seen investors prioritize acquisitions over new development, particularly for irreplaceable assets in urban cores. We expect this to drive not only increased asset sales but also possible M&A and platform investments (e.g., PIF’s investment into Aman) as brands look to take on strategic investors to drive net unit growth.