David Green-Morgan: Hotel Portfolio Sales Drive Volumes in Robust Q1 2013

Following the vigorous 2012 year-end rush, hotel investment volumes in Q1 2013 remained robust, totaling $10.8 billion globally, representing a 53 percent increase year over year (y/y). Activity was largely driven by a number of notable portfolio sales in the Americas and EMEA – portfolio sales’ volumes in the first three months of this year totaled more than 2.75 times those experienced in Q1 2012 and accounted for 54 percent of total volumes vs. 30 percent last year. Single asset sales showed a similar level of volume compared to last year, even though average deal size was up 25 percent.

Upbeat Sentiment in the Americas

First-quarter volumes were up 55 percent y/y driven by several big-ticket sales in New York, Atlanta and Washington D.C., as well as several portfolio transactions including the sale of three Waldorf Astoria resorts to the real estate arm of the Government of Singapore by Hilton Worldwide for a confidential sum.

New York continued to be on the forefront of activity, recording six transactions and accounting for 19 percent of investment volumes in the Americas. Overall, private equity funds were the biggest sellers, accounting for 34 percent, followed closely by hotel owner/operators comprising 32 percent of investment volumes. Sovereign wealth funds emerged as the most dominant buyer in Q1 2013, accounting for 32 percent of volumes, followed by private equity funds and REITs, who each accounted for approximately 19 percent of total volumes.

Portfolio Deals Dominate in Europe

Even though macroeconomic developments are causing a slowdown or even contraction in GDP growth across Europe, investment activity in EMEA grew by 43 percent in Q1 2013 y/y. Hotel trading fundamentals remained flat in the first two months of this year vs. last year, with the exception of a few markets, including Germany (+4.4 percent RevPAR) and Denmark (+11.7 percent RevPAR).

Buyer profiles slightly shifted across the region. High Net Worths (HNWs) struggled to find suitable product and were notably absent from the buyer’ stage. In Q1 2012, HNWs invested $1.1 billion, but only $145 million in Q1 2013.

In contrast, dominant buyers involved in sovereign wealth funds, private equity funds and hotel operators were particularly encouraged by the opportunity for attractive portfolio plays – allowing these groups to obtain notable scale in key markets (including Germany and the United Kingdom) and portfolio discount in pricing (vs. sum of the parts).

Uptick in Activity in Key Asian Gateways

First quarter 2013 hotel investment volumes experience a substantial upsurge (+161 percent) in Asia Pacific compared to the same period last year totalling $650 million, driven by increased activity in Japan, Singapore, Thailand and the Maldives.

Even though Australia experienced a quiet first quarter, investment activity remains strong with a number of large deals currently in play. The absence of available product continues to impede on higher investment volumes as investor interest remains strong. Australia and New Zealand continue to rank highest in the Asia Pacific region for real estate transparency and this will underpin capital inflows, particularly whilst uncertainty prevails.

Japan witnessed four deals totalling $118 million, with REITs emerging as dominant purchasers on the back of positive economic fundamentals and a buoyant stock market that has seen significant surges in stock prices. Although activity continues to be predominantly domestic, the country continues to entice international investors due to promising return prospects, underpinned by a relatively widespread gap between investment yields and interest rates – one of the largest gaps globally at the moment.

David Green-Morgan is Director of Global Capital Markets Research for Jones Lang LaSalle. He can be reached at david.green-morgan@ap.jll.com