Transaction Flood Gates Open

NATIONAL REPORT— The New Year has barely gotten underway and the deal-making dam has already broke with hotels representing all segments of the industry rapidly flowing from one owner to another. And while a number of big-ticket, high profile properties have changed hands over the course of the past two months such as the Las Vegas Hilton, the current feeding frenzy has been marked at least as much by the quantity of acquisitions/dispositions transpiring. In fact, while eye-popping undertakings and large portfolio deals capture the imagination of the industry, it is the steady stream of lower-level hotel transactions that constitutes the fruits of buyers’, sellers’, brokers’ and financiers’ day-to-day labors. “While the sellers always want portfolio deals, we are seeing a lot of one-offs,” said Tom McConnell, senior vp of CB Richard Ellis Hotels. In fact, CBRE recent sold seven Microtels for Stonehurst Hospitality LLC, all to different regional and local investment groups for approximately $18 million collectively, he said. CBRE is also currently marketing 46 Fairfield Inns for First Winthrop, according to McConnell. He also expects these to be sold throughout 2004 in small portfolios and individual deals. McConnell attributes the strong transaction market to a handful of factors: the improved occupancy health of the hotel industry making hotel investments attractive again; an increasing pool of buyers wanting to get into the hospitality industry; and the fact that interest rates are expected to remain at current low levels for the near future. This rationale coincides with the most recent Jones Lang LaSalle Hotels’ Hotels Investor Sentiment Survey (HISS), which found hotel investors indicating their strongest buy rating for the U.S. property sector in three years. In geographical terms, New York and San Francisco top the HISS list as the most desirable cities in which to own, with 70.6% and 86.7% respective “buy” scores. “There is little doubt in many investors’ minds that U.S. hotel performance will improve in 2004. The hotel sector is more appealing than other real estate sectors; thus, we are witnessing a deep pool of opportunistic and institutional buyers,” said Jones Lang LaSalle Hotels Senior VP/Research Melinda McKay. Rob Stiles, California-based managing director and principal of Sonnenblick – Goldman, agreed that transactional activity is indeed on the upswing, citing “continued supportive debt markets accompanied by a narrowing of the bid/ask gap.” Moreover, the marketplace has been further influenced by real signs of economic growth and confidence, thereby making it easier for buyers to be more aggressive in their pricing, he said. “Sellers have been able to successfully fend off their market exit, and by doing so are now getting [purchase]prices they feel they can live with,” Stiles said. Accordingly, the U.S. market is really just warming up, and many expect to see increased activity in the full-service and luxury segments of the industry as the year progresses. For instance, several properties apparently up for grabs at presstime are by KSL Resorts. To this end, KSL sources indicated seven of the organization’s nine properties are on the block— though that number does include several trophy assets such as the Biltmore in Arizona and the Grand Wailea in Hawaii among them. Who could afford to pick up such properties? Certainly, many in the industry are closely watching CNL, which has lately seemed to be identified as a contender for most every property-purchasing as well as company-buying opportunity. As for other likely candidates, Jones Lang LaSalle Hotels Senior VP Tom Fisher said it is no secret “the industry has once again sparked favor with the public markets,” which has contributed to transaction rate. This is evidenced by the emergence of several new hotel REITs such as Ashford Hospitality Trust and Highland Hospitality, which have been active in their own right in acquiring selected propertie