US RevPAR stabilizing; CMBS, SASB fuels big deals: JLL

JLL’s H1 2024 U.S. Hotel Investment Trends report suggest RevPAR is stabilizing, cost pressures are building, bifurcation in liquidity persists and CMBS/SASB is increasing lending appetites.

Here are the highlights about the latest industry trends and performance, according to JLL:

RevPAR remains robust though stabilizing in some markets; cost pressures build

• Though RevPAR increased 14% compared to 2019, performance has begun to decelerate in some markets as consumer savings declines.
• Hotels that cater to more budget-conscious travelers have so far been impacted the most as well as those in leisure-heavy markets. Conversely, luxury hotels and those with a more diversified demand mix have seen growth underpinned by the return of group, corporate, and international travel.
• Stabilizing RevPAR is putting further strain on many owners as operating costs increase resulting in ongoing profitability challenges. Look for this to catalyze some transaction activity in H2.

Bifurcation in U.S. hotel liquidity persists in H1 2024

• On one side, there was a significant increase in demand for select-service and extended stay hotels, as the sector’s portion of total single-asset liquidity in H1 2024 increased 9 percentage points year-over-year to a record-breaking 57%.
• On the other side of the spectrum, luxury hotels remain in favor, maintaining their portion of total single-asset liquidity in H1 2024 at 23%, on par with the prior year.
• This bifurcation for luxury and select-service & extended-stay assets is expected to persist through 2024

Several large transactions fuel uptick in liquidity

• Transaction volume increased 42% in Q2 relative to Q1 driven by four $200M+ transactions. Liquidity though remains behind both last year and 2019 as the bid-ask spread is pronounced.
• Rising financial pressures on owners should catalyze transaction activity in H2, particularly as a litany of loans are expected to mature.
• Private equity will likely be the most acquisitive buyer type, with a further boost expected from foreign capital. Look for REITs to increasingly put their balance sheets to work following nearly a year of pruning their portfolios.

CMBS/SASB significantly increases lending appetite for hotels

• Hotel loans continue to be favored among certain lender types given high credit spreads relative to other asset types. As financing conditions stabilize, lenders including debt funds, banks, and select insurance companies, are increasingly pursuing the industry.
• Recent growth in larger transactions has been partly fueled by a rise in CMBS/SASB issuance which increased 3.3x relative to last year. Expect this capital to gravitate to assets in high barrier-to-entry markets that cater to a diverse customer mix.