Hotel Investment Volumes in U.S. Reach $5.1 Billion Thus Far in 2012, Private Equity Most Active Investor Group

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According to a new report by Lang LaSalle Hotels, U.S. hotel transaction volumes reached $5.1 billion through May 2012, representing the second highest volume over the past four years. Their data excludes note sales, recapitalizations and foreclosures, as well as the previously announced $1.9 billion Motel 6 transaction that has not closed yet.

"The volume of capital flowing to hotel real estate remains high as acquisitive investors enthusiastically seek opportunities to buy hotels. The average single-asset transaction size reached $40 million during the first five months of 2012, representing a slight increase over the average deal tracked between 2006 and 2011," said Arthur Adler, Americas CEO of Jones Lang LaSalle Hotels. "Underpinning investor confidence is the continued strength in hotel operating fundamentals, which are solid across all metrics. On a national basis, hotel revenue per available room (RevPAR) has maintained the strong growth rate posted in 2011."

The first five months of 2012 represent the second highest start to a year since 2008, only exceeded by the first five months of 2011 when real estate investment trusts (REITs) dominated purchases of $100+ million prime urban assets. During that same period of time in 2011, total transaction volume was $6.4 billion.  The average price per key for single assets that traded year-to-date 2012 topped $194,000, five percent above the full-year 2011 level. This level far exceeds the average price per key recorded over the past several years, and emphasises the strength of hotel fundamentals and high level of investor interest.

Private equity investors have become the most active hotel buyers, representing a shift from the first five months of 2011, "Private equity investors continue to make headlines and account for 52 percent of transaction volume, followed by real estate investment trusts (REITs), as the second most acquisitive group, representing 25 percent of purchases by volume. REITs remain active bidders for a number of hotel transactions, and are expected to be increasingly active in the market in 2012," added Adler.

Single asset hotel transactions dominated the landscape, accounting for 70 percent of deal volume. High-quality assets with in-place cash flow located in key urban markets have made up the bulk of the hotel trades tracked thus far in 2012.

Jones Lang LaSalle Hotels' Hotel Investor Sentiment Survey, released last week, reveals that investors' "buy"' sentiment again marks the dominant investor strategy in the United States, with 46 percent of respondents indicating that their primary investment intention over the next six months is to acquire assets. Concurrently, investors' intentions to "sell' assets are at a four-year high, pointing to an increasingly active transactions market over the next six months. The survey is directed toward the world's 6,000+ leading hotel investors and owners.

"Based on the pace recorded thus far in 2012, the firm remains confident that the transaction volume forecast of up to $15 billion for full-year 2012 will be met as momentum in the market further accelerates," concluded Adler.