Hotel Investment Shrinking by 50%
NEW YORK, NY, March 29, 2006. According to Jones Lang LaSalle Hotels, private equity firms are shrinking the traditional window for hotel investments from three to seven years to, in some cases, two to four years, or by as much as half of the traditional investment window.
'Aggressive investors are seeking to exit their assets in as little as 18 months,' said Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels. 'This leaves hotel operators limited time to establish themselves and meet aggressive owner performance expectations. We believe hotel operators will have to be far more proactive and responsive to meet the demands of these sophisticated investors.'
The firm's latest Hotel Investment Outlook Several years ago, the bulk of hotels were held by corporate entities. The integrated model of hotel ownership - combining the property assets and the hotel operating company - was the dominant model. Since then, most international hotel operators have undertaken a clear separation between management and ownership, monetizing the property assets while securing long term leases or management contract which protect tenure and income.
The growing dominance of large private equity firms, coupled with their aggressive asset management skills, diverse portfolios and short term investment horizons, has caused a seismic shift in hotel ownership. Real Estate Investment Trusts, with quarterly earnings pressure and investor growth expectations to maintain stock valuation multiples, further test the management skills of operators.
'While operators have chosen an opportune time to free up capital, they may find that the new ownership regime is more demanding than they have anticipated. This new dynamic will require an increasing sensitivity to owners' objectives as well as far better management skills from the hotel operators to meet the performance requirements,' said Adler.
For a copy of the Hotel Investment Outlook 2006 global report, visit the research section of our Web site: www.joneslanglasallehotels.com.
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