Mid-Year Hotel Transactions Foreshadow Seller's Mkt.
<B>Mid-Year Hotel Transactions Foreshadow Seller's Mkt.</B>
By Bruce Serlen
Hotel transactions for the first half of 2000 remained on the upswing and, at the same time, per-room sale prices stayed strong. This is not surprising, considering the record-breaking occupancy and room rates that hotels achieved during the spring, particularly in such gateway cities as New York, Chicago and San Francisco.
Hospitality consultants HVS International found that the average per-room sale price for the first six months of the year was $131,000. This is considered strong, though lower than last year's record high price per unit of $142,000.
In compiling the data, HVS tracked 70 major hotel transactions. In all of 1999, the firm tracked 118 transactions, suggesting that 2000 will see a record number of deals by year-end.
This is good news for the hotel business, if less so for travel buyers. "Despite some concern regarding supply growth in certain markets, the general outlook for the lodging industry is positive," said Stephen Hennis, HVS director of research, who announced the findings last month. "Hotel companies are focusing on management and tech issues, which should increase profits over the long-term and, consequently, make hotels more attractive as investments."
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Another Year For The Hotels Ahead</B>
For travel buyers, the strong per-unit sale prices are further evidence that the market for managed travel this year will continue to favor the seller, at least in the gateway cities where hotel rooms are in such high demand.
As negotiations for 2001 rates get underway this month and next, hotels in these destinations are less likely to compromise on rate. High barriers to entry for new construction in these markets also keep the pressure on transactions for existing hotels.
U.S. hotel occupancy rates reached 63.5 percent in the first half of the year, according to Smith Travel Research. While this only represented a 1 percent increase over the prior year, average room rates rose 4.4 percent, to $84.88. Meanwhile, RevPAR, a commonly used measure of price and occupancy, rose 5.4 percent.
Results in the gateway cities were in a league of their own. In New York, for example, occupancy for the six months rose 5.7 percent, to 82.9 percent. Similarly, in San Francisco occupancy rose 7.4 percent, to 80.9 percent.
As for room supply growth, Smith Travel Research's data indicate it slowed down 3.2 percent from January to July and was down from 4.2 percent for the same period last year. Demand growth, however, spiked to 4.2 percent, up more than 30 percent from last year.
Said Mark Lomanno, Smith Travel Research president, "We are increasingly optimistic that full-year 2000 occupancy will increase for the first time since 1995, and that the industry will enjoy healthy RevPAR growth."
According to HVS, hotel portfolio sales--as opposed to individual property transactions--accounted for more than half of the year 2000 deals to date. Most of the portfolio sales involved limited service properties, while the individual transactions mostly involved full-service hotels. Among the trophy properties that changed owners were the Westin St. Francis in San Francisco and the Marriott Chicago Downtown, which were among the highest transactions for overall price.