Matt Valley
After reaching a record high in 2011, hotel investment volume in New York decreased to $2.7 billion last year. Despite New York’s transaction levels shrinking by 20 percent, the volume was still enough to rank Manhattan as the most active hotel investment market in the world.
New York outpaced key United States cities including Miami, San Francisco, Los Angeles and Washington D.C., and internationally exceeded transaction volumes witnessed in Paris and Hong Kong.
According to Jones Lang LaSalle’s Hotels & Hospitality Group’s Hotel Intelligence New York report, Manhattan is expected to remain the most active market this year, with volume potentially reaching $2.4 billion.
The city’s largest transaction in 2012 was Strategic Hotels & Resorts and KSL Capital Partners’ purchase of the 509-room Essex House for $362 million. In 2012, private equity firms and real estate investment trusts (REITs) accounted for 54 percent of purchases by volume in Manhattan.
“Looking to 2013, we expect private equity funds to remain the largest buyer group, seeking to achieve opportunistic returns through their significant buying power and risk tolerance. REITs will also feature notably, and continue to make acquisitions of core properties,” says Jeffrey Davis, managing director of Jones Lang LaSalle’s Hotels & Hospitality Group. “Offshore capital from Asia and the Middle East will continue to target trophy and high-profile assets in Manhattan as well.”
The availability of hotel debt in 2013 is expected to be at levels that haven’t been seen since 2007. Specifically, the strong re-emergence of the CMBS market is propelling hotel debt liquidity. CMBS lenders will continue to drive pricing, terms and accessibility for a wide range of assets and borrowers.
“Balance sheet lenders tend to be more selective regarding asset quality, sponsorship and location. They favor core markets such as New York and provide floating loan structures that are sought after by hotel owners,” says Mathew Comfort, executive vice president of Jones Lang LaSalle. “The New York market is therefore expected to be at the forefront of the benefits arising from an increasing array of financing options that will increase market liquidity.”
Active sellers this year are likely to include private equity funds and institutional investors seeking liquidity, brands in cases where they can retain management contracts, andowners seeking to exploit the dramatically improving transactions market and low cap rates. All of these factors will converge to keep deal volume for the city in the range of an estimated $2.3 billion to $2.4 billion.
“New York maintains a RevPAR (revenue per available room) premium of 35 percent more than the next highest market. This, coupled with a highly diversified base of demand and high occupancy rates, is the driving force behind investors’ interest in Manhattan,” says Davis. “It will remain the top U.S. hotel market, attracting significant attention from both domestic and off-shore buyers who want a foothold in this key gateway city.”
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.
In the last five years, Jones Lang LaSalle’s Hotels & Hospitality Group has completed nearly $25 billion in transactions, while also completing approximately 4,000 advisory, valuation and asset management assignments.