After reaching a record high in 2011, hotel investment volume in New York decreased to $2.7 billion last year. Despite New York’s transaction levels shrinking by 20 percent, the volume was still enough to rank Manhattan as the most active hotel investment market in the world. New York outpaced key United States cities including Miami, San Francisco, Los Angeles and Washington D.C., and internationally exceeded transaction volumes witnessed in Paris and Hong Kong. According to Jones Lang LaSalle’s Hotels & Hospitality Group’s Hotel Intelligence New York report, Manhattan is expected to remain the most active market this year, with volume reaching up to $2.4 billion.
The city’s largest transaction in 2012 was Strategic Hotels & Resorts and KSL Capital Partners’ purchase of the 509-room Essex House for $362 million. In 2012, private equity firms and real estate investment trusts (REITs) accounted for 54 percent of purchases by volume in Manhattan.
“Looking to 2013, we expect private equity funds to remain the largest buyer group, seeking to achieve opportunistic returns through their significant buying power and risk tolerance. REITs will also feature notably, and continue to make acquisitions of core properties,” said Jeffrey Davis, Managing Director of Jones Lang LaSalle’s Hotels & Hospitality Group. “Off-shore capital from Asia and the Middle East will continue to target trophy and high-profile assets in Manhattan as well.”
The availability of hotel debt in 2013 is expected to be at levels that haven’t been seen since 2007. Specifically, the strong re-emergence of the CMBS market is propelling hotel debt liquidity. CMBS lenders will continue to drive pricing, terms and accessibility for a wide range of assets and borrowers.
“Balance sheet lenders tend to be more selective regarding asset quality, sponsorship and location. They favor core markets such as New York and provide floating loan structures that are sought after by hotel owners,” said Mathew Comfort, Executive Vice President of Jones Lang LaSalle. “The New York market is therefore expected to be at the forefront of the benefits arising from an increasing array of financing options that will increase market liquidity.”
Active sellers in 2013 will include private equity funds and institutional investors seeking liquidity, brands in cases where they can retain management contracts, and owners seeking to exploit the dramatically improving transactions market and low cap rates. All of these factors will converge to keep deal volume for the city in the range of an estimated $2.3 to $2.4 billion.
“New York maintains a RevPAR premium of 35 percent more than the next highest market; this, coupled with a highly diversified base of demand and high occupancy rates are the driving forces behind investors’ interest in Manhattan,” said Davis. “It will remain the top U.S. hotel market, attracting significant attention from both domestic and off-shore buyers who want a foothold in this key gateway city.”
Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory, valuation and asset management assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.
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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.