Hotel News Now
Inflationary pressures, the rising cost of debt and the lack of discounted pricing are weighing on the U.S. hotel transaction market, but investors and institutional buyers are still putting their capital to work.
Over the past several months, hotel owners sought out hotel deals to better position their portfolios and take advantage of travel’s recovery from the COVID-19 pandemic. Even hotel brands got in on the action, picking up other smaller brands to capture a larger piece of hotel demand.
Here’s a roundup of some of Hotel News Now’s coverage of transactions during the third quarter.
By the midpoint of 2022, hotel transaction players and observers all acknowledged that while there was heavy activity during the first part of the year, they expected the deals pace would likely slow while valuations would remain relatively stable.
“What’ll end up happening is if interest rates go higher, yields will go down, which means pricing will get impacted,” said Eric Guerrero, managing director and partner of brokerage and advisory at HVS. “I still think the values will be fine, and in most cases, values were almost fully recovered.”
However, for hotel deals in California specifically, Atlas Hospitality Group President Alan Reay said he expects economic pressures will play into buyer negotiation strategies as sellers worry about a recovery that takes longer or losing out on selling at a higher price.
“As you start to see some of those assets trading like that, buyers are going to use that, they’ll use those as the new sales comps,” he said.
A recent survey by JLL on investor sentiment indicates strong interest for further hotel acquisitions globally.
“There’s a ton of liquidity worldwide looking for a home, looking for investments,” Gilda Perez-Alvarado, global CEO for JLL Hotels & Hospitality Group, said in an interview. “Hotels, given our ability to change rates or adjust rates in real time — not even daily, in real time — they present a very interesting asset class for investors worldwide.”
Dallas-based NewcrestImage has been an active buyer throughout 2022 after it sold a portfolio of 27 hotels and related assets for $822 million to a joint venture of hotel real estate investment trust Summit Hotel Properties and Singapore-based wealth fund GIC. As part of the deal, NewcrestImage sold its operations over to Aimbridge Hospitality to focus on hotel development and transactions.
In early September, NewcrestImage announced it will acquire a portfolio of 45 branded hotels representing 3,300 rooms across the U.S. for an undisclosed price.
“The current financial environment makes it very attractive to buy rather than build, and this group of fine hotels in high-traffic locations provides us with an exceptional opportunity to immediately start generating significant revenue, profit, and return on investment,” said Mehul Patel, managing partner and CEO of NewcrestImage, in the news release about the deal.
Weeks later, the company said it would purchase another 16 hotels under Marriott International’s Courtyard and Residence Inn brands across nine states through a joint venture with Hospitality Capital Partners.
Noble Investment Group acquired a 14-asset portfolio of Marriott, Hilton and Hyatt properties in August with plans to “invest in physical enhancements across the portfolio while optimizing operations to drive market share and increase profitability.” Earlier in the year, hotel REIT Host Hotels & Resorts acquired a 49% stake in Noble’s asset-management platform in a $90.7 million investment.
Discretionary hospitality fund Electra America Hospitality Group acquired the 225-room Loews Boston Hotel from Loews Corp. for $116.6 million last month with plans to convert it to the luxury long-stay brand AKA. EAHG is a $725 million fund that’s part of real estate private equity firm Electra America and has acquired six hotels over the past 18 months.
As part of the hotel’s conversion to Hotel AKA Back Bay, it will receive a $20 million renovation that will include a soft update of its guestrooms and suites.
Real estate private equity firm Wolfgramm Capital bought the 160-room Waldorf Astoria Park City in Park City, Utah, in an all-cash, off-market deal earlier this month. The price of the deal was not disclosed.
"We are enthusiastic about taking this hotel to the next level and intend to infuse approximately $60 million into the property,” said Koloa Wolfgramm, chief operating officer for Wolfgramm Capital. “We look forward to sharing more about these enhancements at a later date."
Though the auction took place in June, Wells Fargo Bank assumed ownership in July of the foreclosed JW Marriott Chicago with a winning bid of about $251 million. Reporting by the Chicago Tribune indicates Orlando-based owner Estein USA failed to make payments on its $203 million loan, leading the amount to grow to $243 million. Wells Fargo was the sole bidder.
Several hotel REITs have been busy through the quarter as well, shaping their portfolios to their long-term strategies.
During the company’s second-quarter earnings call, Park Hotels & Resorts President and CEO Tom Baltimore Jr. said the company plans to sell off as much as $400 million in assets and use the proceeds to reinvest in the company and pay down debt.
"The highest and best use for us from a capital-allocation standpoint would be investing back into this portfolio, either through ROI projects or buying back stock," he said. "We have a current [share repurchase] authorization up to $300 million."
Apple Hospitality REIT President and CEO Justin Knight said during his company’s earnings call that sellers are more open to negotiations on potential deals.
"We are able to be both patient and flexible as we work to capitalize on potential dislocations in the market," he said. "We continue to actively underwrite and exploit dozens of opportunities both on and off market and anticipate that we will be a net acquirer of assets in 2022, with the transactions likely over the coming months."
Just days before the call, the REIT announced it had refinanced its primary unsecured credit facility, increasing its total credit facility from $850 million to $1.2 billion. The refinancing and increased borrowing capacity provides the company with greater access to liquidity and reduces its secured debt exposure.
RLJ Lodging Trust acquired the 124-room 21c Museum Hotel Nashville for $59 million, citing strength in the market’s recovery and the property’s positioning and location.
Pebblebrook Hotel Trust has been particularly active this quarter as a seller. It most recently sold the Kimpton Hotel Vintage Portland for $32.9 million. It also sold the 236-room Hotel Spero in San Francisco in late August for $71 million, neighbor to 208-room The Marker San Francisco that it sold at the end of June for $77 million. Pebblebrook sold the 306-room Sofitel Philadelphia at Rittenhouse Square for $80 million in August as well.
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