constant re-imagination to keep moving
forward. “With the podium, we don’t see
them creating a venue and leasing it for 20
years. That’s not what Times Square is
about,” he says. “It’s about entertainment,
attraction and what’s new, so that needs to
A MIXED-USE STAPLE
As they embrace this ongoing change,
hotels have also increasingly become a
staple of mixed-use projects during this
cycle. “Each component is driving its own
demand, then you have synergies
between the products,” says Mark Van
Stekelenburg, managing director, CBRE
hotels’ consulting. “They are all ways to
increase utilization,” he says. For example, instead of a large ballroom sitting
empty for five days a week, it may be used
as co-working space.
Brookfield’s Manhattan West, to name
one example, combines offices, restaurants, retail, public space, and residential
and office towers. Similarly in Hudson
Yards, the 92-story 35 Hudson Yards houses
the 200-room Equinox hotel with its spa,
and 143 condominium units. The property
is also close to the 100 plus shops and restaurants complex.
A CHANGE FROM THE LAST
The roots of the change we are seeing today
can be traced back to the end of the last
recession when a boom in supply growth
included the explosion of non-traditional
lodgings such as Airbnb, hostels and micro-hotels, along with the concept of adding
hotels to mixed-use developments.
From 2009 to 2017, US hotel bookings
increased from $116 billion to $185 billion,
according to Deloitte’s “2019 US Travel and
Hospitality Outlook” report. Van
Stekelenburg says, since the bottom of the
last recession to now, the US hotel market
has added about 200 million occupied
rooms. This tremendous growth was led by
It used to be for the hotel market that
weekdays had the higher occupancy and
higher rates than weekends. But now, that
has switched. Nationally hotels are achieving a higher occupancy and higher rates on
the weekends. “That just demonstrates how
much the leisure travel side has grown with
all these new users of lodging products,”
Van Stekelenburg says. ◆
BEHIND THE INCREASE IN HOTEL TRANSACTIONS
For the first three quarters of last year, hotel transaction volume in the United States reached $29.7
billion, more than a 25% year-over-year increase, according to JLL.
There are several reasons for this, according to John Strauss, senior managing director and co-head of Americas Hotel Capital Markets for JLL: The industry got a boost of energy in part because of
tax reform, for starters. Also, hotel performance tends to track and is tightly correlated with GDP. The
growth of the last year or so has created momentum in the hotel sector’s underlying fundamentals–
hence the strong appetite for investors to buy into this sector, he says.
Private Equity Leads the Way
But who are these investors? Not surprisingly, given their ubiquity across the commercial real estate
asset classes, for the first three quarters of 2018 private equity represented 37% of hotel acquisitions
in the United States, or $11 billion. This compares to 30% ($7.1 billion) for all of 2017.
One reason for their stepped up presence, according to JLL, is that private equity groups have
more capital than they’ve had in the past, allowing them to pursue a wider variety of investment
strategies related to hospitality, ranging from core plus to opportunistic plays.
“Private equity has gone on the offensive in last couple of years,” broadening their strategies by
targeting full service hotels and portfolios, Strauss says. “Select service and primary markets were
once the main focus of private equity but as we got into these later stages of the cycle, private equity
has gone after resort hotels, bigger convention and meeting space”—categories that have experienced little to no new supply because of lack of construction financing.
“So they’ve become the dominant player this year for these assets, writing big checks” of around
$500 million to $1 billion in transaction sizes, he says.
There are several other groups who are also demonstrating a strong appetite for hospitality product,
JLL reports. Development companies became more active in the first three quarters of 2018,
accounting for 13% ($4 billion) of hotel acquisitions, compared to 10% for all of 2017.
REITs as well were active in 2017 and 2018, Strauss says, but they are more cautious than other
buyers right now. “They’ve always been always a disciplined buyer pool.” Strauss estimates that 50% of
REITs were buying offensively on a selective basis last year. REITs compromise 25% of the buyer mix Y TD.
Other buyer groups that are well capitalized include owner operators like Hyatt. The company is
growing their portfolio by taking advantage of tax exchanges, Strauss says.
Foreign buyers as well are active. JLL reports that offshore activity slightly increased last year:
2018 figures show offshore capital was equal to $4 billion of US hotel acquisitions, compared to $3.6
billion over 2017.
Strauss notes while China has become a net seller of hotel assets, the US is seeing investors from
other Asian countries as well as from Europe and the Middle East. These investors are very active but
they tend to limit themselves to the top 5-7 strongest US markets.
And finally there are the high net worth families and individuals investing in the space. “Given
the yield premium for hotels you will always have this group buying assets depending on location
and motivation,” Strauss says. —Erika Morphy
“When Las Vegas was built it was
like ‘If you build it, they will come.’
The difference is with what we have,
everyone is already there. We just
need to give them the right thing to
look at and do,”
DAVID OROWITZ, senior vice president
of development at L&L Holding Co.