The Expert: Select-Service Buyers Hungry for Deals

While liquidity is virtually unavailable for big-ticket hotel investment sales, investors are eager for select-service properties and pockets of financing are available for hotels trading under $15 million. But competition is tight, according to Jones Lang LaSalle Hotels’ recently conducted biannual U.S. Select Service Hotel Investor Survey, which revealed that hungry buyers now outnumber sellers by more than six to one.According to the survey, 55 percent of investors are targeting distressed assets or loans/notes. But many equity-rich buyers are forced to sit on the sidelines, eagerly awaiting opportunistic acquisitions, as both distressed and performing assets are being put up for sale infrequently. Nor will that change soon: Nearly half of respondents indicated an overlying intention to hold their assets over the next six months. Sixty-six percent of select-service investors surveyed indicated that the bulk of their debt maturities will not expire until 2012 or beyond. As evidenced by the lingering gap between the number of buyers and sellers, owners with performing properties are not under extreme pressure to sell, though the assumable financing on these assets may be an attractant to investors.Hotel investors are increasingly looking to local banks, government-sponsored loans and private equity for acquisition financing. Traditionally, private equity groups provided mezzanine or bridge loans, but with the lack of available debt from institutional lenders and the effective shutdown of the commercial mortgage-backed securities market, private equity is being widely sought as the senior position on permanent loans.Meanwhile, the economic recession and stagnant debt markets continue to dampen investor confidence: 84 percent of select-service investors surveyed anticipate further declines in revenue per available room over the next six months, with more than half expecting RevPAR declines to continue over the next 12 months. Nevertheless, investors’ two-year outlook has softened only marginally, indicating that they remain confident in longer-term RevPAR growth potential for the select-service market.Al Calhoun is managing director of Jones Lang LaSalle Hotels.