U.S. hotel deals down 81% in H1 2008, reports Jones Lang LaSalle Hotels

Aug 22, 08 | 1:56 am

Jones Lang LaSalle Hotels announced today that the volume of U.S. hotel transactions for the first six months of 2008 declined 81% from the same period in 2007, reaching $6.0 billion. According to Jones Lang LaSalle Hotels' proprietary database, which tracks transactions $10 million and above, first quarter 2008 transaction volume was relatively stronger at $3.4 billion, whereas the second quarter saw $2.6 billion in deal closings.

"Illiquid debt markets and economic uncertainty have U.S. investors generally taking a "wait and see" approach," said Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels. "While the drop in U.S. transaction volume is pronounced, it is not far below the volume recorded in the first half of 2004 and 2005. The full-year 2008 U.S. volume is expected to come in somewhat below the 2004 total, in the range of $10 to $12 billion."

"REITs gained the most ground on the acquisition front in the first half of 2008, and were the largest net buyer of hotel assets, reflecting a shift from debt-driven transactions to more traditional real estate investment deals," said Kristina Paider, senior vice president of marketing and research for Jones Lang LaSalle Hotels. Highly leveraged investors such as private equity firms bought assets worth $998 million in the first half while disposing of $1.27 billion in assets, making them net sellers. "European investors bought eight U.S. hotels in the first half of 2008, in transactions amounting to $533.6 million, indicative of foreign investors' interest in assets in U.S. gateway markets," said Paider.

Portfolio transactions accounted for 75% of deal volume in the first half of 2007, but decreased to 48% of transaction volume in the first six months of 2008 as the restricted debt markets made it difficult for larger transactions to get off the ground. "Individual deal size also decreased. Through mid-2008, five single asset sales exceeded the $100 million mark, down from 19 in the first half of 2007," said Paider.

With CMBS originators in the background, balance sheet lenders such as life insurers, regional banks and pension funds are now the most active first mortgage lenders for hotel investors in the U.S. LTV ratios have shrunk and debt coverage ratios have expanded, resulting in an increase in the amount of equity required to fund a transaction and an increase in the weighted average cost of capital. This, combined with the weakening industry fundamentals has placed upward pressure on capitalization rates.

"Nevertheless, as evidenced by the successful execution of several high quality deals, the markets are indeed open and appetite remains among lenders for well-sponsored assets in good locations," said Adler.


About Jones Lang LaSalle Hotels

Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide both the depth and breadth of advice required by hotel investors and hotel companies, through a robust and integrated local network. In 2007, Jones Lang LaSalle Hotels provided sale and purchase advice on 259 hotel transactions globally; representing a combined value of US$13.9 billion, a total of 54,763 hotel rooms in 84 cities. In addition advisory and valuation services were provided on 660 assignments globally for 182,048 rooms across more than 300 cities.

The global team comprises over 270 hotel specialists, operating from 31 offices in 18 countries. The firm's advice is supported by a dedicated global research team, which produced over 45 publications in 2007 in addition to client research. Jones Lang LaSalle Hotels' services span the hospitality spectrum; from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Their services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels' clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com