MINEOLA, NY? With ?strategic? growth on the tongues of many hotel organizations in the midst of expanding their lodging brands, gateway cities are commanding the highest hotel values these days. For companies such as Wyndham International, Carlson Hospitality, Marriott International and Starwood Hotels & Resorts, securing a presence in key urban centers for their full-service and luxury hotel brands is crucial. The good news for these opportunity seekers is that now is a good time to be in the market, experts said. Peak profitability in the industry, means hotels are generating record high occupancies and ADRs. The high performance of hotel assets translates into fair, if not robust prices being paid with good returns for buyers in almost any major market. Los Angeles, New York, San Diego and Boston have all shown increases in hotel values for 1999 over 1998 numbers, according to statistics from HVS International. Los Angeles hotel values showed the highest increases, up 26% this year. New York values rose 14% over 1998, San Diego values rose 16% and Boston values rose 4%. Steve Rushmore, founder and president of HVS, said that is because the amount of new supply in these markets is somewhat limited, which keeps both occupancy and ADRs at a premium. ?Anytime hotel values go down, you can bet it?s because of supply increases, which dilute the market. These urban centers have built- in demand, they attract leisure travelers and meetings business,? Rushmore said. These markets also saw the most action so far in 1999. In New York City, The Four Seasons was sold by former owner Lai Sun Hotels for $300 million to Ty Warner, the entrepreneur who created the Beanie Baby. The Essex House was snatched up by Strategic Hotel Capital for $250 million earlier this year. Nikko Hotels International was the seller. In Los Angeles, the Century Plaza Hotel and Tower was sold for $260 million to an investor group led by Pivotal Group of Phoenix that also included a Boston-based investment fund managed by AEW Capital Management. The new owners will upgrade the property in order to rebrand the Tower with a five-star flag. Those cities with decreasing hotel values tend to be those incurring the most new supply, said Rushmore, and are not as desirable for purchases because of lower returns. These cities include: Albuquerque, with a 34% decrease in values; Portland, at -19% and Pittsburgh at -13%. As expected, there have not been any major transactions in these areas in 1999. Limited Real Estate Acquisition activity is expected to continue in gateway cities throughout the year, said experts. However, limited real estate and high land costs make it a venture not suited for the faint of heart. ?What you are seeing is strategic buyers with vertically integrated structures that have the ability to purchase and finance in a formula fashion,? said Rick Swig, president of San Francisco-based RSBA & Associates. Players that are getting into these markets tend to have pre-organized purchasing and finance partners that are used over and over again, he said. For example, Marriott International?s relationship with Host Marriott, which owns many Marriott-branded assets that are managed or franchised by Marriott International. Another example is MeriStar Hotels, which formed an alliance with Oakhill, which provides investment capital for the company to purchase full-service hotels. ?Because there are sellers that must deploy assets, sales will be initiated. Most of them will be in the markets that are already strong and have shown activity,? said Swig.
