Investors Spend Over $40 Billion on U.S. Hotel Real Estate in 2015

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According to the 2016 edition of STR's Hotel Investment Almanac, hotel investors spent $40.5 billion on U.S. hotel real estate acquisitions, post-acquisition capital and new developments in 2015. The total represents a significant increase from the roughly $30 billion invested in the industry during 2014.

"While overall investment in the hotel industry continues to rise, we have definitely seen a shift toward new construction over the past couple of years with rising asset prices and strong demand levels encouraging new hotel development in many markets," said Steve Hennis, STR's VP of consulting & analytics. "Based on the supply pipeline, this trend is expected to continue for at least the next couple of years."

A total of 773 new openings were reported, a 36% increase from 2014. Those openings produced 85,000 new rooms, a 37% year-over-year increase. More than 900 hotel openings are expected in 2016 with more than 100,000 new rooms expected to hit the market.

"With many markets at record demand levels, adding new rooms to accommodate the growing demand makes investment sense," Hennis said. "However, the risk is market timing given the lag time in construction. As we see in many of the oil and gas regions today, new hotels are entering the marketplace at a time when the supply and demand dynamic has inverted, creating a glut of struggling properties."

Hotel asset transactions surpassed $23 billion in 2015. The hotel industry had not reported more than $20 billion in transactions since 2007. Despite a slow start to the year, transactions are expected to top $25 billion in 2016.

From the 599 individual properties tracked, an average price per key of $238,000 was reported, an 8.7% increase from 2014. The amount of additional capital infused into assets following acquisition dropped to less than $20,000 per key, a level generally not seen during a period of growth for the industry. The total investment per room for acquisitions totaled $257,000 per key in 2015, an increase of 3.2% from 2014.

Other key findings from the 2016 Hotel Investment Almanac include:

• Over the past five years, new hotel rooms in oil and gas regions accounted for 20% of the additions to the U.S. hotel room supply.

• The average capitalization rate for hotels rose to 8.5% in 2015, after hitting an all-time low of 8.2% in 2014.

• The average interest rate for acquisition loans rose slightly for the second year in a row, reaching 5.4% in 2015.

• Following the trend of recent years, the Upper Midscale and Upscale segments accounted for the most new projects. However, for the first time on record, Independent hotel rooms accounted for the largest component of new rooms in 2015. Among the brands, Hampton Inn & Suites continues to lead in terms of both new hotels and new rooms.

• The New York, New York, market accounted for seven hotel transactions above the $200-million mark.

• The Waldorf-Astoria in New York garnered the highest acquisition price ($1.95 billion) in the history of the U.S. hotel industry.

• Four markets reported multiple openings with a cost of $100 million or more: Miami Beach, Florida; New York; Chicago, Illinois; and New Orleans, Louisiana.