Why more jaw-dropping deals could be coming

NATIONAL REPORT — From the $705 million sale of the Arizona Biltmore earlier this year to the $1 billion-plus sale of the Hyatt Regency Orlando a few weeks ago, there’s no doubt that large hotel transactions are on the rise.

A new report from JLL said there is every reason to think more of those eye-popping transactions are on the way for the rest of 2024.

JLL said through late August, there has been a 59% increase in transaction volume for single-asset deals larger than $200 million compared to the same period in 2023, with a total so far of $4 billion recorded. This activity also represents a 15% increase from 2019 levels. In fact, single-asset hotel transactions for deals of that size are now at their highest level in eight years.

Those large transactions are happening in high-growth and high barrier-to-entry markets. They are predominantly financed through CMBS/SASB loans, according to Ophelia Makis, a researcher at JLL Hotels and Retail Capital Markets.

“The volume of CMBS hotel issuance in the first half of 2024 has already exceeded the total for the entire year of 2023, reaching $10.7 billion,” Makis said. “We anticipate more issuance to materialize in the rest of the year in tandem with the rise of high-dollar trades, with this capital likely to gravitate towards hotels in high barrier-to-entry markets that have diverse demand drivers.”

The JLL report also said with ample dry powder still available right now, “there is a heightened appetite for high-quality, large transactions, particularly for luxury hotels situated in high-growth markets and urban centers.”

JLL listed several noteworthy closings of huge transactions this year, including the most recent sale of the Hyatt Regency Orlando for $1.1 billion; the $705 million sale of the Arizona Biltmore; the $400-million-plus sale of the Ritz-Carlton Key Biscayne; Larry Ellison's purchase of the Eau Palm Beach Resort & Spa; the $265 million sale of 1 Hotel Central Park New York and the $230 million sale of the Hyatt Regency San Antonio.

JLL also noted the significance of Blackstone’s sale of the Turtle Bay Resort in Oahu for $725 million. This resort will be transformed into a Ritz-Carlton, with Marriott contributing a record-high $45 million in key money.

Makis said the Federal Reserve’s signal of a rate cut coming in September is a “significant positive change” that should fuel more activity. But it may not fuel more billion-dollar transactions.

“[The rate cut] should generally spur deal activity in the short-to-medium term,” Makis said. “However, regarding large transactions, it is important to note that while rate cuts can be helpful, there are only a handful of buyers that can take on deals of this size.”