Multi-Property Deals Cap Busy Year In Hotel Sales

Already a busy year for hotel transactions, 2004 ended with two multi-property deals announced on Dec. 31. Investment funds primarily controlled by Goldman Sachs acquired 25 hotels from Wyndham International, while Ashford Hospitality, a real estate investment trust, acquired a 21-property portfolio from a partnership including financier George Soros. The two deals combined have an estimated value of $586 million.

Of the 25 hotels that Wyndham sold, 15 carry the Wyndham flag. Wyndham will continue to manage these hotels for the new owners. Included are hotels in mostly secondary business travel destinations such as Indianapolis, Toledo, Ohio, and Pittsburgh. The remaining 10 hotels carry a variety of flags including Hilton, Hyatt and Marriott. What is not clear is who will manage these properties once the deal closes.

Wyndham has moved from owning assets to managing them on behalf of others. "This transaction completes our program of disposing of non-strategic hotels that we began in 1999," said chairman and CEO Fred Kleisner. "As in earlier transactions, proceeds will go to reduce debt."

Of the 21 hotels Ashford Hospitality acquired, 13 are full-service and operate under five brands, including Hilton, Radisson and Crowne Plaza. They're located in a mix of primary and secondary destinations. This portion of the portfolio is earmarked for an approximately $37 million, year-long renovation. Monty Bennett, president and CEO, said Ashford plans to retaining ownership of these properties.

Ashford did not make the same commitment to the remaining eight properties, which are midprice and located mostly in tertiary destinations that see less business travel. Brands include Holiday Inn, Ramada and Howard Johnson. "We're in the process of evaluating our alternatives, which range from potential sale to repositioning and rebranding," Bennett said.

Total transaction volume in the lodging industry for 2004 will reach $11.5 billion, a 70 percent increase over 2003 and more than three times the 2002 volume, according to survey results released last month by Jones Lang LaSalle Hotels, an investment advisory firm.

New hotel owners typically invest in capital renovations in their properties and then seek to raise rates. Accordingly, travel managers, whose hotel programs include these newly acquired and renovated properties, can expect owners to demand higher rates. At the same time buyers are resistant, however, their travelers are benefiting from the improved accommodations and services.

Not only is the total dollar value of hotel transactions in 2004 expected to hit a record high, the average price paid per hotel room also is likely to reach a new level, according to the Jones Lang LaSalle Hotels study. "The average price per key is projected to jump 17 percent over 2003 from $120,000 a key to $140,000," said the study author Anwar Elgonemy.

Elgonemy attributed 2004's buoyant market for hotel sales to a number of factors. "First, there was strong competition for deals with lots of money chasing limited product," he said. "Real estate in general has become a highly sought-after asset class with hotels becoming more alluring in the minds of investors. By contrast, the equity markets have been extremely volatile, while bond markets have offered low yields and high corporate credit risk."