Business Specialties Investments
Aug 20, 2008
By: Judy Feldman, Contributing Correspondent
The volume of U.S. hotel transactions for the first six months of 2008 plunged 81 percent from the year-ago period, to $6 billion, according to a Jones Lang LaSalle Hotels report. The firm based the conclusion on its proprietary database, which tracks transactions $10 million deals and above. In the first quarter 2008 transaction volume was relatively stronger at $3.4 billion.
The second quarter saw just $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 & CEO-Americas for Jones Lang LaSalle Hotels said in a statement. While this drop in U.S. transaction volume is "pronounced," he noted, it is not far below the volume in the first half of 2004 and 2005.
JLL now predicts the full-year 2008 U.S. volume to be in $10 billion to $12 billion range--just below 2004 totals. REITs gained most on the acquisition front in the first half of this year and were the largest net buyer of hotel assets, the report found. Less debt was used as well, JLL advised.
Highly leveraged investors bought $998 million of assets and sold $1.27 billion in assets, making them net sellers, during that period. Europeans bought U.S. hotels worth $534 million. Portfolio transactions accounted for 75 percent of deal volume in the first half of 2007, but were down to 48 percent of volume in the first half of 2008.
Deals also became smaller, $100 million-plus deals stood at five single asset sales compared to eight at the same time in 2007. The report also found that life insurers, regional banks and pension funds are now the most active first mortgage lenders for hotel investors in the U.S. But high quality deals are still being done, noted Adler.
"I agree wholeheartedly with Arthur (Adler)'s comments for the most part, although I'm skeptical that you'll see much demand shifting to emerging markets, which still depend on the same debt sources as developed markets, except for the ME (Middle East), which is a pure equity market awash with liquidity," Phil Gordon, a partner in the hotel & leisure practice group at the law firm of Perkins Coie L.L.P told CPN.
As to the trigger for such a significant drop, Gordon advised, "Initially, the drop off was due to the collapse in the financing markets. Then as commodity prices (particularly oil) spiked, most lodging participants (including financing sources) believed that revenues for 2008 and 2009 will be way down, making it very difficult to finance deals even at lower leverage levels."
Gordon also confirmed the report's findings concerning deal-size going forward. "Smaller deals will absolutely continue as owners shed selected properties to deleverage or continue with small scale development deals that are ancillary to other developments," he advised.
By: Judy Feldman, Contributing Correspondent
The volume of U.S. hotel transactions for the first six months of 2008 plunged 81 percent from the year-ago period, to $6 billion, according to a Jones Lang LaSalle Hotels report. The firm based the conclusion on its proprietary database, which tracks transactions $10 million deals and above. In the first quarter 2008 transaction volume was relatively stronger at $3.4 billion.
The second quarter saw just $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 & CEO-Americas for Jones Lang LaSalle Hotels said in a statement. While this drop in U.S. transaction volume is "pronounced," he noted, it is not far below the volume in the first half of 2004 and 2005.
JLL now predicts the full-year 2008 U.S. volume to be in $10 billion to $12 billion range--just below 2004 totals. REITs gained most on the acquisition front in the first half of this year and were the largest net buyer of hotel assets, the report found. Less debt was used as well, JLL advised.
Highly leveraged investors bought $998 million of assets and sold $1.27 billion in assets, making them net sellers, during that period. Europeans bought U.S. hotels worth $534 million. Portfolio transactions accounted for 75 percent of deal volume in the first half of 2007, but were down to 48 percent of volume in the first half of 2008.
Deals also became smaller, $100 million-plus deals stood at five single asset sales compared to eight at the same time in 2007. The report also found that life insurers, regional banks and pension funds are now the most active first mortgage lenders for hotel investors in the U.S. But high quality deals are still being done, noted Adler.
"I agree wholeheartedly with Arthur (Adler)'s comments for the most part, although I'm skeptical that you'll see much demand shifting to emerging markets, which still depend on the same debt sources as developed markets, except for the ME (Middle East), which is a pure equity market awash with liquidity," Phil Gordon, a partner in the hotel & leisure practice group at the law firm of Perkins Coie L.L.P told CPN.
As to the trigger for such a significant drop, Gordon advised, "Initially, the drop off was due to the collapse in the financing markets. Then as commodity prices (particularly oil) spiked, most lodging participants (including financing sources) believed that revenues for 2008 and 2009 will be way down, making it very difficult to finance deals even at lower leverage levels."
Gordon also confirmed the report's findings concerning deal-size going forward. "Smaller deals will absolutely continue as owners shed selected properties to deleverage or continue with small scale development deals that are ancillary to other developments," he advised.
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