The Expert: Hotel Buyers Gear Up
- May 26, 2009
Economic strain is weighing down hotel markets worldwide, and volatility in the financial markets persists. Jones Lang LaSalle Hotels recently conducted its biannual Hotel Investor Sentiment Survey, revealing that investors’ six-month, short-term trading performance expectations across the Americas have decreased further and that investors are more pessimistic than following Sept. 11, 2001. However, the rate of decline has slowed.And investors’ medium-term, two-year performance outlook has improved for the first time in two-and-a-half years, indicative of the expectation that the low point in operating fundamentals is nearing. Investors now expect positive medium-term trading in 18 of the 29 markets tracked across the Americas.Washington, D.C., Houston and the Pacific Northwest exhibit the least-negative short-term sentiment in the United States. The medium-term outlook is by far the most positive for that market, owing to stronger government business, and to a lesser extent for Boston and San Francisco.With the increased cost and decreased availability of debt, as well as greater perception of risk, leveraged internal rate of return requirements rose by 160 basis points across the Americas. Additionally, markets in our survey notched an increase in expected cap rates for acquisitions, reaching 10.4 percent. This marks a 270-basis-point increase from the record-low cap rates surveyed in late 2006.The largest shift in investor intentions manifested in the 6 percent increase in buy sentiment, now at its highest level in two years. There are many equity-rich groups on the sidelines seeking discounted buying opportunities. Cities attracting the highest attention for acquisitions include San Francisco, Boston, Los Angeles and San Diego.In the previous survey, investors indicated a dominant hold strategy for almost all U.S. markets. With the buy sentiment picking up again, a reduced two-thirds of U.S. markets now exhibit an overlying hold sentiment, suggesting that transaction volumes will increase when owners become more motivated to sell.Arthur Adler is managing director & CEO of the Americas for Jones Lang LaSalle Hotels.