National Hotel Sales Market Poised To Reach New Highs
17 May, 2006, New York, NY
Cushman & Wakefield’s Eric Lewis sees record-setting year ahead
From a top-line standpoint, the national hotel sales market is essentially back to its 2000 peak, Cushman & Wakefield’s Senior Managing Director, Hospitality and Gaming Group Eric Lewis recently said in commenting on the state of the sector.
“Overall, given industry fundamentals, as well as investor appetite for hotel product, 2006 should be a strong record for hotel investment sales,” Mr. Lewis said. “In the hospitality industry, where your property’s occupancy can go from 100 to zero percent in one day, there is always the risk of some unforeseen event rendering your budget worthless. However, this is not being priced into the market by serious buyers.”
Mr. Lewis said that New York and Hawaii are the two hottest markets right now, with San Francisco, Miami, Boston, San Diego, Washington, D.C., Phoenix, Chicago and Los Angeles rounding out the top 10.
New York and Washington, D.C. are particularly compelling because they have rebounded so strongly since 2001. “At times, you can’t find a room in New York,” Mr. Lewis said. He added that Washington, D.C. has benefited from “a rising tide of leisure and commercial demand, combined with increasing activity at the newly expanded convention center.”
Capital for hotel sales transactions is plentiful and is flowing from all sources. “On recent portfolio and single property transactions, we have seen capital coming from all directions – foreign and domestic,” he said. “Middle Eastern buyers seem to have a particularly keen interest in owning high-quality U.S. hotel product.”
A recent example in New York was the purchase of the landmark Essex House on Central Park South by Jumeriah, a Middle Eastern investment company, in 2005.
According to Mr. Lewis, rising interest rates have always been a concern to real estate investors, but are only one factor in an economic landscape that plays well for investment sales: Investment alternatives to real estate are not providing attractive returns. Real estate, and hotel product in particular, is becoming ever-more accepted as an investment vehicle and hotel fundamentals are extremely favorable in that supply has been constrained relative to demand.
“Against these other factors, the impact of rising interest rates is muted,” Mr. Lewis said.
Mr. Lewis concluded that barring any unforeseen event, “given the supply pipeline on a national basis and in most major markets relative to anticipated demand gains, this year is shaping up to be a record setter for the industry.”
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