High-Price Buys Augur Premium Rates

<B>High-Price Buys Augur Premium Rates</B>

By Bruce Serlen

Investors looking to buy into the deluxe segment of the U.S. hotel industry need deeper pockets than ever, especially if they're looking to break into key gateway destinations like New York City and Boston.

In fact, the highest price paid for a U.S. hotel acquisition--on a per-room basis--in 1999 was the $743,000 paid per room by investor Ty Warner for the Four Seasons New York Hotel. That price, termed "astronomical" by Stephen Rushmore, president of hotel appraisal firm HVS International, was roughly $300,000 more per room than the second most expensive per-room transaction of last year--the Ritz-Carlton Boston Hotel, which garnered $444,000 per room.

Rounding out the top five transactions were three additional deals in the hot New York City market--the Essex House, which now carries the Westin flag, the Stanhope Hotel, recently rebranded a Park Hyatt, and the Westin Central Park South, now an Inter-Continental. Per-room prices there ranged between $301,000 and $402,000.

Meanwhile, deals for five southern California properties--three in and around the Los Angeles market--were the sixth through tenth most expensive per-room transactions of the year.

For travel buyers, the message is clear: Room rates in the deluxe category in key U.S. gateway cities will remain at a premium. And negotiating flexibility will remain slim at best.

According to Rushmore, the average sale price per room, counting all segments of the industry, increased to $142,000 last year, the highest point on record.

Looking to 2000, the number of hotel transactions in the United States is expected to be similar to last year's, with per-room prices remaining strong. "There are numerous properties for sale and many willing buyers," said Rushmore.

He did, however, sound a note of caution due to the change in interest rates: "Many properties are being offered at premium prices and, in most cases, buyers are no longer willing to pay a premium, particularly with the rising interest rates."

In gateway cities in particular, high barriers to entry make new construction time consuming and problematic in other ways. "This puts more pressure on acquisitions of existing properties, which in turn tends to keep prices high," said Daniel H. Lesser, senior director for the hospitality industry practice at Cushman & Wakefield, a real estate brokerage firm. "At the same time, hotel companies that want to be seen as world-class feel the need to be represented in these same high-visibility markets, which also keeps these properties desirable.