More Than $18bil in Luxury Lodging Facilities Sold in 2007
DENVER, CO, January 24, 2007. More than $18 billion in upscale and luxury lodging facilities changed hands in 2007, according to Stephen Hennis, Managing Director of Hospitium. This compares to the record level of over $21 billion in transactions that occurred in 2006. A total of 279 properties traded last year, slightly more than the 263 assets that sold in the prior year. "The number of transactions in 2007 remained very high despite some market uncertainty and additional caution on the part of investors," Hennis states.
While the investment appetite for upscale and luxury products has been consistent, the average price per room waned from a record level of $243,000 in 2006 to $202,000 in 2007. "While lodging investments, particularly at the high end, continue to be highly attractive to the investment community, it appears that we have passed the peak in this real estate cycle," Hennis says. "From late 2004 through 2006, all of the stars aligned with a flood of capital, the high availability of debt, and robust revenue growth. In 2007, we began to see lenders pull back from riskier deals and RevPAR growth taper to a more moderate level."
In comparison to 2005 and 2006, very few trophy-level assets traded in 2007. The Point at Saranac Lake in upstate New York garnered the highest price per room in 2007 at more than $2.7 million per room. The Maui Prince Makena in Hawaii, which attracted the highest sale price in 2007 at $575 million, also achieved a high per room mark at approximately $1.8 million per unit.
Dallas experienced the most investment activity last year in the upscale and luxury hotel sectors, while New York, Washington, and New Orleans followed as the most active markets. "The rise in the number of transactions in New Orleans over the past year is a great sign for the city," Hennis emphasizes. "Following Hurricane Katrina, many investors were hesitant to enter the market, but it appears that they are now more optimistic about New Orleans' return to stature as one of the nation's top hotel markets."
Despite concerns about the national economy, the outlook for the lodging industry remains positive. "While deal pace and revenue growth are anticipated to slow over the next twelve months, performance is expected to remain strong. The lodging sector is much more prepared to withstand an economic downturn this time around," Hennis notes. "The upscale and luxury supply pipeline has remained in check throughout this cycle and many of the management initiatives implemented to maximize cash flow during the prior slowdown remain in place."
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