A shift in the U.S. hotel transaction mix led to a 12% drop in investment price per room, according to the Hotel Transaction Almanac 2018, released by STR in conjunction with Hotel Brokers International (HBI).
The hotel transactions tracked by STR totaled nearly $20.1 billion, but the average total investment per room declined more than $30,000 (to $240,000) from the record average established in 2016 ($272,000). This was the lowest total investment price per room since 2013. Investment price per room is equal to the sale price plus expected capital expenditures.
“The lower price point is more of an indication of the mix of hotel assets sold, rather than a decrease in hotel values themselves,” said Hannah Smith, STR consultant. “Portfolio transactions were a key factor in the decline, as properties sold within a portfolio represented 21% of all of the hotels sold last year. Portfolios tend not to include many upper upscale or luxury hotels.”
Smith also noted that there was a lower concentration of hotel transactions in the Top 25 Markets, which tend to sell at higher price points. After accounting for 52% of all hotel sales in 2016, the Top 25 Markets represented 37% of sales in 2017. Other key findings from the Hotel Transaction Almanac 2018 include:
- Although price per room decreased, the amount of additional capital infused into hotels following acquisition rose significantly to $37,000. This was the highest level of additional capital per room since 2012 and the second highest since 2000.
- The Alohilani Resort Waikiki Beach (formerly the Pacific Beach Hotel) in Hawaii garnered the highest acquisition price at $515 million with Commerz Real Investment as the buyer. Overall, four of the top 10 most expensive transactions tracked by STR in 2017 were made in Hawaii.
- The Hotel Yountville in Yountville, California, generated the highest price per room transaction at $1,206,250 with Ashford Hospitality Prime, Inc. as the buyer.
- Overall, there were five properties sold with a price per room of at least $1 million.
- The New York City market was once again well represented on the list of transactions with 10 hotels sold at a price per room of more than $400,000.
- Independent hotels continue to sell at a higher price per room, representing almost half of the top 30 transactions tracked by STR in 2017.
- Real estate investment trusts (REITs) and foreign investors were the primary purchases of the top transactions.
“We expect hotel values to remain at an all-time high in 2018, despite a rise in interest rates,” Smith said. “Capitalization rates, however, will likely increase again this year, as occupancy has peaked in many major markets and rate growth has become sluggish. With all that said, transaction volume is mostly expected to be a continuation of 2017.”
For more information regarding the Hotel Transaction Almanac, please visit here.
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