NATIONAL REPORT—Roughly 70% of the individual hotel sales in the U.S. over $10 million in the first quarter of 2012 occurred in four markets: California, Florida, New York and Washington DC.
According to LW Hospitality Associates, LLC, which compiled the data, approximately one-third of the 25 sales of that size transacted nationally during the quarter took place in the New York metropolitan area. Six took place in Manhattan, one in Brooklyn and one in Long Branch, NJ.
The most highly priced transaction was LaSalle Hotel Properties’ purchase of the Park Central Hotel in Manhattan from Highgate Holdings for $396 million, or $429,000 per key. The deal had been announced last summer, but took six months to close, thereby qualifying as a first-quarter transaction.
The second and third most expensive transactions in the quarter were the sale of the 591-room Fairmont San Francisco for $200 million, or $338,409 per key, and the sale of the 692-room Doral Golf Resort & Country Club in Miami for $216,763 per key, respectively. The Fairmont was sold by a joint venture of Maritz Wolff & Co. and Kingdom Holding Co. to a joint venture of Woodridge Capital Partners, LLC and Oaktree Capital Management, LP, while the Doral was sold by Paulson & Co. to the Trump Organization.
A rebound in the pace of transactions began last year, following the severe 2008-2010 industry downturn, as values began to stabilize. Since the rebound began, buyers have shown a preference for properties on either U.S. coast with a special eye for trophy assets in gateway cities. New York probably tops the list.
LW Hospitality Associates’ first-quarter 2012 data suggests the trend still has momentum, according to president & CEO Daniel Lesser. “The trend is clearly being driven by the fundamental economics of these markets in terms of high barriers-to-entry, plus the demand generators that exist in these markets,” Lesser explained.
The markets tend to hum on all cylinders. “So there’s significant corporate demand, group meeting demand and leisure demand. Look at New York and San Francisco as examples. They are truly 24/7 cities. They have downtowns that are vibrant at night as opposed to cities where the downtown rolls up after 5 p.m. and on weekends,” Lesser said.
Because of their appeal, these citieshave seen an influx of international travelers that is pumping up occupancy rate and ADR. “Leisure travelers continue to be drawn by the favorable conversion rates of the U.S. dollar versus the Euro and other currencies,” he noted.
Underlying the transactions activity specifically, Lesser cited the tremendous amount of international capital that is targeted for investment in U.S. gateway locations, capital that is targeted for investment in hotels. “There are always going to be investors taking calculated risks. But the U.S. has been and probably always will be the safest place on the planet to invest, irrespective of all the issues facing the economy,” he said.
Branded vs. unbranded
Asked if buyers today placed as much of a premium on branded versus unbranded properties as they might have before the downturn, Lesser said there was no simple answer. “It’s something that has evolved over time. It depends on what and where the asset is. In markets like New York and San Francisco, there could well be situations where the economics make more sense to be an independent than a brand,” he explained.
Yet people have to be careful when they talk about independents, he cautioned. Once an independent hotel becomes successful and the owners create a second one with the same name, they start describing the pair as a brand. “So you have independents that are starting out as ‘independents,’ but are morphing into brands in and of themselves,” he said.
Still, some buyers remain biased towards assets that carry the names of big brands like Marriott, Hilton and Hyatt. It depends on the profile of the investor. Lesser used the sale of the independent Hotel Williamsburg in Brooklyn, NY, during the first quarter to make his point. A joint venture of Graves Hospitality and KSK Construction sold the 64-room property for $33 million or a very healthy $515,000 a key to King & Grove. As the hotel’s name indicates, it’s located in the trendy neighborhood of Williamsburg.
“According to industry reports, the sellers built the hotel with the intention of keeping it long-term,” he said. “But they received an unsolicited offer they couldn’t turn down from a buyer that knows the hotel business and real estate, but is looking to expand its own brand. At the end of the day, I don’t think the buyer even entertained buying a branded property. That’s not the business they’re in.”