Real Estate Alert: Hotel Sales Up 11%; Eastdil Leads Broker Race

Large hotel sales rose 10.7% in the first half, marking a partial rebound from a steep plunge a year earlier.

There were $8.1 billion of hotel transactions during the first six months of the year, according to Real Estate Alert’s Deal Database, which tracks sales of at least $25 million. That was up from $7.4 billion during the same period of 2016 — but still far below the record first-half tally of $17.6 billion set in 2015.

Eastdil Secured continued its reign as the top hotel broker, closing $2.8 billion of sales by June 30, a 51% jump from a year earlier. That gave it a 39.3% share of brokered trades, up from 29.6%. JLL maintained its second-place rank with $1.6 billion of deals, up 8%, although its market share dipped slightly, to 22.8%. Third-place Hodges Ward Elliott boosted its activity by 89%, to $1.3 billion, for an 18.6% share, up from 11.2%. CBRE, which has been actively building up its hotel team, ranked fourth with a gain of 73% to $969.2 million, boosting its share to 13.6% from 8.9%.

After annual sales hit an all-time peak of $27.7 billion in 2015 — amid a wave of mega-deals — the tally dropped by 22% last year, to a still-strong $21.7 billion. The drastic drop in sales during the first half of 2016 was followed by a surge that produced the busiest-ever second half. It would take nearly as large a jump in the remainder of 2017 to match last year’s total.

While they wouldn’t speculate on the annual number, brokers say the pace of trading so far this year reflects a healthy sales environment that they expect to continue in the second half.

“In many respects I think we have stabilized,” said Kevin Mallory, global head of CBRE’s hotel practice. “We are confident, given underlying fundamentals and continued strong capital-markets liquidity, in a robust transaction market for the remainder of the year.”

Louis Stervinou, a managing director at Eastdil, noted that room revenue “continues to increase and in several active markets out-performed forecasts. This upward trend, combined
with the lodging REITs’ healthy performance, has had a positive influence on investors’ underwriting and mindset.”

Mark Wynne Smith, global chief executive of hotels at JLL, said he expects more owners to pull the trigger on listings in the second half. “We will see more assets coming to the market
in the second half because the capital is certainly there to acquire them,” he said.

But some buyers warn that sellers will have to trim their pricing expectations. Industry groups are forecasting that while hotel occupancy nationally will hold steady for the next
few years, revenue growth, which has begun to slow, will diminish further. Investors also are growing concerned about the prospect of a recession.

Buyers must consider whether they’ll be able to boost performance enough to outpace rising costs, such as wages and property taxes, said Monty Bennett, founder and chairman of Dallas based Ashford Group, which operates two public REITs, Ashford Hospitality and Ashford Hospitality Prime. “It takes a lot of work and a lot of analysis to find deals that might work,” he said.

Would-be sellers that can’t get the pricing they hope for may choose to hold on to properties, slowing transaction volume. “Debt capital markets are unbelievably favorable right now,” noted Nolan Hecht, head of hotel investments at Square Mile Capital in New York. “Instead of selling into the headwinds, owners are just refinancing their assets.”

Meanwhile, activity has dropped off in some top markets where construction has led to a bulge in supply. New York, the perennial leader in hotel sales, tumbled from first place to
ninth as first-half trades plummeted to $290 million from $1.4 billion the year before. South Florida, another top market that is digesting new supply, saw sales fall by nearly half, to $289 million. It dropped to 10th place from third a year earlier.

First-half activity was strongest in West Coast locations, where revenues were slow to recover from the 2008 downturn and still have room to run, and markets like Hawaii, where development is constrained. Hawaii came out on top, with $1.1 billion of deals in the half, up from just $50 million a year earlier. In the Los Angeles area, $677.5 million of hotels changed hands, up from $230 million in the first half of 2016.

The rankings are based on hotel transactions that closed in the first six months of the year and involved full or partial stakes valued at $25 million or more. When multiple brokers shared a listing, the dollar credit was divided evenly, but each broker was credited with one transaction. Only brokers for sellers were given credit. Portfolio transactions were included if the overall price was at least $200 million or if a hotel in the portfolio had a value of at least $25 million.