2024 has been a turbulent year thus far as we have witnessed dramatic national and global events that may very well alter the course of history. During this past quarter alone:

Two assassination attempts were made on a former U.S. President who is a major party candidate once again in the upcoming election.

One month prior to this year's Democratic National Convention, U.S. President Joe Biden, having earned sufficient delegates to be the party nominee, withdrew his candidacy and was replaced by the current Vice President Kamala Harris.

Nearly one year after the horrific events of October 7, 2023, the Middle East is on the brink of an all-out regional war.

The largest outage in the history of information technology occurred when cybersecurity company CrowdStrike distributed a faulty update to its software that caused millions of systems to crash which caused massive disruptions for major airlines, health care service providers, 911 emergency systems, retail payment systems and millions of people throughout the globe.

Amid signs that inflation was moderating, and the labor market was weakening, The U.S. Federal Reserve (Fed) chose to lower the overnight borrowing rate by a half percentage point, the first interest rate cut since the early days of the Covid pandemic.

Within less than one month, a deeply divided America will hold the most consequential presidential election in a generation.

All things considered, the U.S. economy is currently strong, with growth rebounding after a slowdown earlier in the year. Inflation is slowing from its peak, and the Fed expects it to return to its 2% target by mid-2025. The U.S. added 254,000 jobs in September, exceeding expectations. Robust consumer spending, significant business investment, and a downward 2/7 trend of interest rates are anticipated to keep optimism about America's economy intact. Nonetheless, uncertainty surrounding the U.S. presidential election has led consumers and businesses to curtail spending in the second half of 2024. In fact, since 2000, presidential election years have seen Real GDP growth decline by 110 bps on average vs. the prior year. In each of the past four presidential election years, both hotel demand growth and RevPAR growth slowed from the prior year. That risk may be further exaggerated by the pending expiration in early 2025 of the individual tax cuts passed under former President Trump and the expiration of Affordable Care Act health insurance subsidies expanded under President Biden. Additionally, the debt limit will need to be increased again in early 2025, which will further complicate the aforementioned political issues.

The recent Fed reduction of the federal funds rate is the first in four years with several more expected until stabilization in the low to mid 3 percent range. Although there has been a meaningful decline from recent levels, compared with the average federal funds rate during the decade leading up to 2019, the range still represents a quadrupling of borrowing costs and signals a new normal.

While U.S. RevPAR remains robust, performance has decelerated in some markets as consumer savings have dwindled and credit card debt has risen, leisure-oriented markets and economy lodging facilities have been negatively impacted. Conversely, higher end hotels and those with a diversified mix of business including corporate and group meeting patronage are exhibiting strong performance. Furthermore, while outbound international travel from the U.S. is surging, inbound foreign visitation, although increasing continues to lag pre-pandemic levels. Finally, with no change anticipated in national occupancy for this year compared with 2023, ADR is anticipated to increase a modest 2.0 percent, resulting in a RevPAR increase of 2.0 percent for 2024. It is interesting to note that on a real dollar basis, 2024 RevPAR is expected to be roughly 6 percent below 2019 levels.

The elevated cost of debt coupled with limited amounts of development financing and high construction costs continue to mute new additions to U.S. hotel supply. Furthermore, in addition to hotels that have reached the end of their economic lives and have been demolished for development of alternative use(s) (which may include a lodging component), existing supply deletions continue to occur as numerous assets have been acquired for conversion to affordable housing, dwellings for homeless, and residences for military veterans and student housing.

The U.S. lodging sector is also facing challenges as operating costs are rising dramatically, particularly labor and insurance. Increasing expenses are exerting negative pressure on profit margins. Union labor contracts representing tens of thousands of hotel workers across the nation are up for negotiation of new work agreements. Though the hotel industry has largely rebounded from the pandemic, union workers claim the benefits are not trickling down to their paychecks with current wages insufficient to meet the rising cost of living, especially in major cities. Additionally, many claim that pandemic-era staffing reductions were never 3/7 reversed, creating more strenuous workloads today. On the other hand, the hotel industry, while paying record sums in wages and benefits, continues to struggle with workforce shortages. Labor negotiations have occurred in a piecemeal fashion resulting in strikes in numerous markets and at many hotels with more threatened. Increasing property insurance premiums have been exacerbated by climate related natural disasters including most recently Hurricanes Helene and Milton in the southeast U.S. In addition to preventing select transactions from closing, soaring pricing of insurance and in some cases, challenges obtaining any coverage at all has forced certain assets into foreclosure.

Government regulation of the hospitality industry is forever evolving and changing as most recently illustrated by Intro 991, also known as the Safe Hotels Act, proposed by the New York City Council. This highly controversial bill requires hotels to obtain licenses, directly employ core staff without using third-party vendors and limit hotel ownership transfers. If enacted many perceive the law will reduce operational flexibility and threaten the survival of numerous NYC hotels, and coupled with existing restrictions on new hotel development, would result in skyrocketing room rates across the city. Given the uncertainty of this legislation passing through the City Council, some capital providers have deemed NYC lodging as highly risky until the final details are released.

Hotel companies continue to leverage their platforms and loyalty programs to fuel growth, as evidenced by several recently announced acquisitions and/or strategic alliances/partnerships including:

Sonder Holdings Inc. (NASDAQ: SOND) entered into a long-term strategic licensing agreement with Marriott International, Inc. (NASDAQ: MAR) whereby its approximately 200 properties worldwide will be available to book through MAR's site as a new collection labeled Sonder by Marriott Bonvoy.

Hyatt Hotels Corporation (NYSE: H) has enhanced its lifestyle offerings with the acquisition of Standard International, parent company of The Standard and Bunkhouse Hotels brands which includes management, franchise and license contracts for 22 open hotels with approximately 2,000 rooms throughout the globe.

In an all cash $525 million transaction, India based Oravel Stays, the parent company of the global travel technology company OYO, has agreed to acquire G6 Hospitality, the economy lodging franchisor and parent company of the Motel 6 and Studio 6 brands, from Blackstone Real Estate.

The LWHA Q3 2024 Major U.S. Hotel Sales Survey includes 97 single asset sale transactions over $10 million which totaled just over $4.4 billion and included approximately 16,600 hotel rooms with an average sale price per room of $266,000.

In comparison, the LWHA Q2 2024 Major U.S. Hotel Sales Survey included 90 sales that totaled just over $4.0 billion and included approximately 14,350 hotel rooms with an average sale price per room of $279,000. Comparing Q3 2024 with Q2 2024, the number of trades increased nearly 8 percent while total dollar volume grew approximately 11 percent and sale price per room declined by under 5 percent.

By further comparison, the LWHA Q3 2023 Major U.S. Hotel Sales Survey includes 88 single asset sale transactions over $10 million which totaled roughly $3.2 billion and included approximately 14,000 hotel rooms with an average sale price per room of $228,000. Comparing Q3 2024 with Q3 2023, the number of trades increased by approximately 10 percent while total dollar volume grew roughly 39 percent, and sale price per room increased by nearly 17 percent.

While the lodging sector continues to exhibit strong fundamentals, with relatively high cost of debt, dampened sale transaction activity persists. The recent interest rate reduction is anticipated to continue a downward trend. Coupled with debt maturities and capital required to conduct product improvement programs are expected to spur an increasing amount of hotel sale investment volume. Additional noteworthy Q3 2024 observations include:

Nineteen trades or nearly 20 percent of the national quarter total occurred in the State of California, followed by eighteen trades or just about 19 percent of the national quarter in Florida. Combined, thirty-seven trades or 38 percent of the national quarter occurred in California and Florida.

The five largest U.S. hotel sale transactions by Total Sale Price include:

  • Hyatt Regency Orlando, FL – 1,641 rooms, $1.07B or $652,041 per room. Buyer: JV Ares Management & Rida Development, Seller: Hyatt Hotels Corporation (NYSE: H). Seller (H) retained a $265M preferred equity interest, $100M of which can be reduced to zero if/when (1) a renovation is completed, and (2) the hotel does not achieve certain NOI hurdles. Additionally, seller (H) provided an additional $50M of seller financing for an adjacent 45-acre parcel which is slated for development of a 2,500 room Grand Hyatt Orlando. This trade represented 25 percent of Q3 2024 total dollar investment volume.
  • Thompson Central Park New York, by Hyatt – 587 rooms, $308M or $524,702 per room Buyer: Gencom, Seller: JV GFI Capital Resources Group & Elliott Management.
  • Eau Palm Beach Resort & Spa Manalapan, FL – 309 rooms, $277,390,000 or $897,702 per room. Buyer: Lawrence Investments (Larry Ellison), Seller: Lewis Trust Group Ltd.
  • 1 Hotel Central Park New York, NY – 229 rooms, $233,800,000 or $1,020,961 per room. Buyer: Host Hotels & Resorts, Inc. (NASDAQ: HST), Seller: Starwood Capital Group.
  • Hyatt Regency Clearwater Beach Resort & Spa Clearwater Beach, FL – $137M or $479,021 per room. Buyer: Blackstone, Seller: Westmont Hospitality Group.

The five largest U.S. hotel sale transactions by Sale Price Per Room include:

  • The Islands of Islamorada, FL – 30 units, $2.4M per unit. Buyer: The Wills Companies, Seller: The Frisbie Group The resort includes 22 waterfront villas and an eight-unit suite hotel, with plans to introduce the villas as luxury for sale residential units.
  • 1 Hotel Central Park New York, NY – 229 rooms, $1,020,961 per room. Buyer: Host Hotels & Resorts, Inc. (NASDAQ: HST), Seller: Starwood Capital Group.
  • Eau Palm Beach Resort & Spa Manalapan, FL – 309 rooms, $897,702 per room. Buyer: Lawrence Investments (Larry Ellison), Seller: Lewis Trust Group Ltd.
  • Hyatt Regency Orlando, FL – 1,641 rooms, $652,041 per room. Buyer: JV Ares Management & Rida Development, Seller: Hyatt Hotels Corporation (NYSE: H). Seller (H) retained a $265M preferred equity interest, $100M of which can be reduced to zero if/when (1) a renovation is completed, and (2) the hotel does not achieve certain NOI hurdles. Additionally, seller (H) provided an additional $50M of seller financing for an adjacent 45-acre parcel which is slated for development of a 2,500 room Grand Hyatt Orlando. This trade represented 25 percent of Q3 2024 total dollar investment volume.
  • Pacific Edge Hotel Laguna Beach, CA – 125 rooms, $640,000 per room. Buyer: Dune Drifter, Seller: JV Highgate & Morgan Stanley.

Additional noteworthy trades include:

Hyatt Centric Hotel & Shops Waikiki Beach Honolulu, HI – 230 rooms, $115M or $500,000 per room. Buyer: Financial Partners Group, Seller: JV CoastWood Capital & Chartres Lodging Group The transaction included 55,496 SF of retail space.

Newport Harbor Hotel and Marina Newport, RI – 133 rooms, $73.5M or $552,632 per room. Buyer: Procaccianti Companies Inc., Seller: Shaner Hotel Group. The property includes a 60- slip marina.

Institutional investment platforms, several of whom are lodging centric, transacted during Q3 2024. Examples of buyers include Ares Management, Basis Investment Group, Blackstone, Certares, Chartres Lodging Group, Clearview Hotel Capital, Gencom, HHM Hotels, Highline Hospitality Partners, Host Hotels & Resorts, Inc., Navika Capital Group, Noble Investment Group, Peachtree Group, Rockbridge, TCOR Hotel Partners, Three Wall Capital, TMGOC Ventures, and TPG Real Estate Partners.

Examples of sellers include AWH Capital Partners, AVR Realty, Blackstone, BRE Hotels & Resorts, Chartres Lodging Group, Finvarb Group, GFI Capital Resources Group, HHM Hotels, Highgate, HRI Properties, Hyatt Hotels Corporation, MCR, McSam Hotel Group, Morgan Stanley, NewcrestImage, RLJ Lodging Trust, Rockpoint, Shaner Hotel Group, Starwood Capital Group, Westmont Hospitality Group, Wheelock Street Capital, and Xenia Hotels & Resorts. An abundant amount of debt has been available for the sector as evidenced by numerous recently announced acquisition financings and property refinancings, including: Wells Fargo, Bank of America, and Deutsche Bank syndicated a $620 million loan in connection with the $1.07B acquisition of the 1,641 room Hyatt Regency Orlando, FL.

A consortium that included Ramsfield Hospitality Finance, AB CarVal, and Affinius Capital provided a $230 million loan for the $300M acquisition of the 587 room Thompson Central Park Hotel New York.

Citi Real Estate Funding provided $1 billion in refinancing proceeds in connection with the 1,047 key Boca Raton Resort & Club.

$430M in refinancing proceeds was provided by Goldman Sachs for the 1,048 room Fairmont Austin Hotel.

Citi Real Estate Funding originated $400 million in new debt in connection with Shutters on the Beach and Hotel Casa del Mar both located in Santa Monica, CA.

JP Morgan Chase originated $307 million of commercial mortgage-backed securities (CMBS) debt to refinance a 1,054-key Omni Boston at the Seaport.

Wells Fargo and JPMorgan Chase originated a $305 million loan to refinance the 790 room Loews Miami Beach Hotel.

Marathon Asset Management provided a $210 million loan to refinance the 427 room RitzCarlton Dallas, Las Colinas.

Recent growth in larger transactions has been partly fueled by a rise in CMBS issuance as numerous lenders favor hotel loans because of high credit spreads that can be realized relative to other asset types. Furthermore, as credit spreads have narrowed for single-asset, single-borrower, commercial mortgage-backed securities (SASB CMBS), financing has become appealing for large assets particularly luxury hotels situated in high-growth markets and urban centers with strong cash flow.

Post pandemic, the U.S. hotel sector continues to prove to be one of the most resilient asset classes and the outlook remains positive. Although operating costs are rising, demand for lodging remains robust allowing for hotel owners and operators to maintain pricing power. Large numbers of hotel property loans are set to mature during the next 18 to 24 months.

Much of this debt, originally secured under favorable terms, will need to be either refinanced at significantly higher interest rates, exerting strain on borrowers, or force assets to be placed on the market for sale. Transaction volume will also be catalyzed as many capital starved hotels are now under brand pressure to execute pandemic deferred Property Improvement Plans (PIPs). These stresses will cause many property owners to dispose of properties, while others will "hand keys" to their lender(s) who are in the business of obtaining market returns on debt financing, not owning commercial real estate, which in turn will result in increased hotel transaction activity. An unprecedented amount of equity is primed for deployment as interest rates ease and distressed opportunities are brought to the market.

Daniel Lesser
+1 212 300 6684
LW Hospitality Advisors LLC (LWHA)

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