CHICAGO— Although global hotel deal volume in 2013 is projected to remain in line with the most recent three-year average, Jones Lang LaSalle’s Hotels & Hospitality Group believes that signs point to an ongoing uptick in hotel transactions activity in the Americas sooner rather than later.
Five forces will drive the hotel investment market during the next five years, pointed out Jones Lang LaSalle at the recent Americas Lodging Investment Summit (ALIS) at the J.W. Marriott Los Angeles LIVE.
“There will be a significant amount of property coming to market in 2013 from a combination of the deleveraging occurring as $55 billion of CMBS loans mature in the next few years, and we’ll see investors who bought earlier in the cycle want their capital gains and they’ll sell,” said Arthur Adler, Americas CEO of Jones Lang LaSalle’s Hotels & Hospitality Group.
“You can’t underestimate the composition of hotel ownership over a long period of time, as many hotels today are in the hands of traders versus holders,” emphasized Adler.
Investors should watch the following five key forces and their impact on the hotel market:
Boom or bust?: Global deal volume is projected to reach as high as $33 billion this year, in line with the most recent three-year average, and could rise to $50 billion to $70 billion in the medium term. Foreign investors, primarily groups from Asia and the Middle East, have already put $3.2 billion in offshore capital into hotels in the United States since 2010 and aren’t expected to slow down in the coming years.
Hotel transaction drivers: The United States will account for half the global deal activity as fundamentals remain strong. Improving industry fundamentals, the availability and cost of capital, REIT stock prices, the amount of product on the market and the composition of hotel ownership all have a significant impact on transaction volume and will continue to drive growth.
Cash is king, but debt is on its way back: The formidable return of the CMBS market last year improved pricing and terms for borrowers, while drawing other lenders into the hospitality arena. Debt availability should reach a six-year high as domestic and offshore banks, insurance companies, debt funds and mortgage REITs will augment the increased CMBS lending.
Increasing the value of a hotel: As top-line revenue rebounds, owners will fight to avoid profit erosion and maintain asset value through increased emphasis on more dynamic and efficient revenue management and analytical tools. Increasing competition for traveler loyalty and third-party travel agents will challenge operators and come at a cost. Hotels will need to invest more in digital marketing efforts and leverage the use of online travel agencies as part of a diversified distribution channel strategy.
Let the games begin in Latin America: Economies in Latin America are expected to grow by 4 percent annually through 2020 and the region’s share of global GDP is slated to increase by 25 percent from 2000 to 2020. Economic reforms, growth in income per capita stemming from increased economic decentralization in several key markets and events such as the 2014 FIFA Soccer World Cup and Summer Olympic Games in Brazil will make the region attractive for growth in the lodging sector. Brazil, Mexico, Colombia, Peru and Chile will be at the forefront of the increase.
As operating fundamentals remain strong, hotels should remain a favored asset class globally among lenders as well as institutional and offshore investors. With debt simultaneously becoming more available and competitively priced, asset values and transaction volume should continue to rise.
Jones Lang LaSalle’s Hotels & Hospitality Group provides real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties.
— Matt Valley