Property investment is set to intensify in the US hotel market, with buyers becoming more aggressive in 2013. According to Jones Lang LaSalle's Hotel Investment Outlook, 2012 was a positive year for the sector but buying activity will increase this year, with an abundance of equity capital and improving debt market helping to drive growth. It is expected that transaction volumes will rise to USD 18.5 billion (GBP 11.6 billion) from USD 17.5 billion (GBP 11.1 million approximately).
Capital values are also expected to rise, thanks to strong competition for high quality assets. However, this will drive down yields on hotel investment. Nevertheless, financing is expected to be easier to come by, with the CMBS facilitating its re-emergence. This will allow debt liquidity to reach its highest level since 2007. CMBS lenders will set pricing, terms and accessibility, but balance sheet lenders will be more selective in terms of asset quality, market and sponsorship. Floating rate structures, which are favoured by hotel owners, will still be provided.
Arthur Adler, America's chief executive officer of Jones Lang LaSalle's Hotels and Hospitality Group, stated: "The United States remains the world’s most liquid hotel investment market, which will lead the Americas region to transact approximately 55 per cent of the global transaction volume. We should see global volumes top USD 32 billion (GBP 20.2 billion) this year. The unpaid balance of hotel CMBS loans with initial maturity dates through 2013 totals nearly $19 billion . Lenders, and in particular subordinate lenders, have shown an increased willingness to foreclose or exercise other rights and remedies, including note sales."
This means that 2013 could see the deleveraging of hotel assets, which has been much anticipated. Private equity funds will be the largest buyers of hotel real estate, as more and more people look to capitalise on the sector's strong revenue growth and lenders try to rid foreclosed assets. Availability, cost of capital and changes in supply and demand fundamentals are also helping to drive activity. REIT stock prices, the seize of assets entering the market and hotel ownership compositions (trader versus long-term holder) are also creating favourable environments.
- Thursday 24 January 2013