The Expert: U.S. Transaction Volume Fell 82 Percent in 2008

The U.S. experienced an 82 percent drop in hotel transaction volume during 2008, from $45 billion in 2007 to $8.2 billion, based on transactions of at least $10 million. As a near-term market recovery is unlikely, volume is forecast to soften to $7 billion this year.The first half of 2009 will be as idle as late 2008, but more divestment activity is forecast for the second half, as some owners make strategic decisions, sometimes on an unwilling basis, to dispose of assets even while pricing remains relatively weak.Though equity is available in the marketplace, it is not yet ready to jump into hotel ownership, and many equity investors are seeking to acquire loan positions or highly distressed situations instead. These factors, combined with the lack of debt liquidity and continued decline in hotel fundamentals, will continue to be the greatest challenges facing hotel-sale transactions during 2009.Opportunistic investors are already searching for distressed assets. But 2009 will not produce a tidal wave of sellers because owners will be reticent to sell into an illiquid market unless forced by their weakened financial conditions. Debt maturities, which will peak in 2010 and 2011, will serve as the primary driver of distress.The global movement of capital will continue in 2009 as crossborder investment is curtailed in favor of maintaining capital at home, and operators’ expansion plans will be scaled back.Once lending and economic fundamentals pick up, hotel activity could rise relatively quickly if a consensus builds among investors and lenders that the bottom of the market is in sight and if buyer and seller pricing expectations converge. However, this confidence is likely to be fragile for an extended period, making transactions tough to close for all but the most attractive assets in the near term.