As one of the hardest hit asset classes during the recession, the U.S. resort sector has dramatically improved this year accounting for 18.4 percent of total investment transaction volume in the hospitality sector. The $2.46 billion of transactions through August marks the highest volume in the segment since 2007 and more than triple the prior-year period.
The U.S. resort sector represents 13 percent of the total hotel room supply, including more than 3,900 hotels with 608,000 rooms. The resort market’s revenue per available room (RevPAR) and average daily rate (ADR) have surpassed the previous 2007 peak with average RevPAR of $102.99 and average ADR of $153.81 through August.
Source: Jones Lang LaSalle
The resort market has room to grow with occupancy nearing the prior peak, and a constricted new supply pipeline. Additionally, resorts in the U.S. often have net operating income per available room that is 1.5 to 2 times the income that a standard full-service hotel brings to the bottom line, and investors are taking note.
“Given the intense capital requirement of building a new and competitive resort, as well as the lack of financing for such developments, there are few new four-and-five star resorts under construction,” says Art Adler, Americas CEO of Jones Lang LaSalle’s hotels and hospitality group. “The muted development is driven by the stringent entitlement processes, minimal developable land and the rising cost of materials.”
Adler says these factors are pushing down cap rates on existing well-positioned, cash-flowing resorts as competition increases. “The steady improvement in the market will result in a lengthier and more robust up-cycle, providing new owners with a significant runway of strong operating performance,” he says.
Even though the resort market is taking off, not all assets are ready for the flight. During the downturn, hotels, particularly resorts, held off on renovations. Now that the market is rebounding, owners have the capacity to add amenities and create a more differentiated product, according to Jones Lang LaSalle.
“Aside from attracting and retaining their customer base with a repositioned physical plant and new recreational amenities, owners who are able to go to market in the next three years with renovated product can capitalize on the upswing,” says Gregory Rumpel, managing director of Jones Lang LaSalle’s hotels and hospitality group.
Rumpel also says owners can also take advantage of the lower cost of capital offered by REITs and offshore investors seeking to enter the resort space. “Private equity funds have their eyes on value-add resort acquisitions,” he says.
— Staff Reports