One-On-One: Hotels End Two-Year Hiatus In Selling Off Their Assets

Hilton Group PLC last month announced it had put Chicago's landmark Drake Hotel on the block, and various owners during the past few months have closed on deals to sell less prominent hotels. After a two-year drought in asset sales, analysts said they expected this initial actively to be only the tip of the iceberg.

New hotel ownership typically creates opportunity for travel buyers as the incoming sales team is more willing than its predecessors to negotiate attractive rates as a way of building trial usage.

The proposed sale of the Drake follows the decision last November to put the Chicago Marriott on the block. The Drake is the only U.S. hotel asset of London-based Hilton Group, which is separate from Hilton Hotels Corp.

Working with CNL Hospitality Corp., Hilton Hotels Corp., last month acquired ownership of five hotels, each of which had carried a Hilton flag. Three Embassy Suites Hotels in California, Florida and Virginia, which were owned by Strategic Hotel Capital, were included. As part of the transaction, Hilton retained the long-term management contracts on all the properties. Last December, the Hilton-CNL partnership acquired the Sheraton El Conquistador in Tucson, Ariz., which since has been converted to the core Hilton brand.

"For the Americas, some markets may be in an early upturn phase, but investors rank the majority of markets in a trough of the cycle," said Arthur Adler, managing director and CEO of the region for Jones Lang LaSalle Hotels, a real estate advisory firm. "As a result of this bottoming out, a strong buy sentiment exists, the strongest we've seen in two years." Adler said he expected a proliferation of asset sales in 2003. Underlying the prediction is the fact that investors believe that capitalization rates in some U.S. hotel markets will fall below 10 percent, the lowest rate in the six years the firm has tracked this data. Investors recognize that hotel cash flows have reached bottom, mostly as a result of the current economy and the accompanying fall-off in travel. As a result, buyers will be making offers that come closer to matching sellers' expectations.

Jones Lang LaSalle's most recent research indicated that investors view Washington, D.C., as the nation's most active market for asset sales, followed by Boston, San Francisco and Miami. "Without a doubt, Washington records strong positive results in the short term and an almost unanimous positive vote in the medium term," Adler said. In such a market as San Francisco, however, there's still a gap between the prices investors are willing to pay and the amount for which sellers are looking.

Overseas, Starwood this month announced it was selling the historic Hotel Principe di Savoia in Milan to London-based Dorchester Hotels, which will manage the property. The property is part of the Ciga portfolio that Starwood has been trying to sell since last year.