Investor interest in the hospitality industry and signing of deals is intensifying as the United States continues to emerge from the pandemic and the potential for business travel accelerates.
Lone Star Funds announced on Wednesday that a subsidiary of Lone Star had acquired five luxury and upscale hotels from Host Hotels & Resorts for a total purchase price of $ 551 million, of which around $ 11 million was for Furniture, Accessories and Equipment Replacement Fund (FF&E).
The hotels are: The Whitley, A Luxury Collection Hotel, Atlanta Buckhead, Georgia; The Westin Buckhead Atlanta, Georgia; Los Angeles Westin Airport, located at Los Angeles International Airport in California; San Ramon Marriott, located in Santa Clara, California; and the Westfields Marriott Washington Dulles, located in Chantilly, Virginia.
Improvements and renovations are underway under this agreement and more such actions are on the horizon.
âWe look forward to completing the renovation program already underway at these formidable properties, which are located in strong markets with an attractive mix of industry exposure and business and leisure demand,â said AndrÃ© Collin. , President, Commercial Real Estate Funds, Lone Star.
In another deal, Summit Hotel Properties this week announced that it has entered into a definitive agreement to acquire a portfolio of 27 hotels totaling 3,709 rooms, two parking lots and various financial incentives through its existing joint venture with GIC for $ 822 million from affiliates. by NewcrestImage. .
The agreement breaks down as follows: $ 776.5 million, or $ 209,000 per key, for the portfolio of 27 hotels, $ 24.8 million for the two car parks and $ 20.7 million for the various incentives. financial.
Active search for current offers
Gilda Perez-Alvarado, Global CEO of JLL Hotels & Hospitality, told GlobeSt that all major players are actively seeking deals. “Strong fundamentals, the reopening of the market and the expectation that the United States will continue to outperform in all segments will continue to fuel investor demand.”
Sellers, for their part, have plenty of reasons to come to the market now, Steen Petri, senior vice president, Investments at HEI Hotels & Resorts, told GlobeSt. “More owners are encouraged to sell, either because of financial fatigue after the last 18 months of operating losses, or in some cases emboldened by the recent surge in high-priced transactions.”
He said this was in part due to greater certainty and optimism for the future than at the same time last year, when a vaccine was not yet available and the outlook was bleak and uncertain.
âIt was also motivated by significant amounts of capital raised in anticipation of distressed hotel real estate in the wake of COVID-19,â Petri said. âFewer troubled sales have materialized than expected, and still a lot of capital looking to deploy has driven up prices, but also the relative attractiveness of hotels over other types of real estate has driven rates down. capping of hotels.
Brand hotels should benefit
He said well-located and more recently built hotels in fast-growing markets are and will be more attractive to investors.
âBranded hotels within strong brand families will have a premium as equity investors and lenders appreciate the convenience of strong reservation systems and brand familiarity, which has historically proven to be useful as the demand picks up and the RevPAR bounces back. These family-owned, branded hotels offer a great value proposition for travelers, whether leisure or business, and are expected to benefit disproportionately from the recovery. “
Some distress on the horizon
As the recovery continues to materialize, investors will increasingly have confidence in stocks, Petri concludes. âA few years of reduced supply pipeline will help existing hotels to recover further. I don’t think values ââhave peaked, but good deals will be harder to find as distress situations are resolved.
Certainly, not all troubled loans will be resolved, providing opportunities for frustrated opportunistic investors.
Ann Hambly, Founder and CEO of 1st Service Solutions, tells GlobeSt that upcoming repayments for operators with CMBS debt face challenges.
âThe typical structure of COVID relief was a payment deferral period (3, 6, 12 months),â Hambly said. âThis relief has come in handy for hotel owners as they go through the worst time of COVID. “
For homeowners who have traditional bank debt, the deferred amount has been added to the loan principal balance and due at maturity, she said. For homeowners with CMBS debt, the deferred amount had to be repaid over the same period as the deferral.
âFor example, the deferred payments were from April 2020 to March 2021 with full payments starting in April 2021,â Hambly said. âOn CMBS loans, deferred payments also had to be repaid over a 12-month period, starting in April 2021. This meant that many hotel owners were forced to make two full payments, starting in April. 2021.–and most of these hotels couldn’t support two full payments before COVID.
This led the owners to find other ways to finance this deficit. Some were forced to bring in preferred stock, some sold their properties, while others took more drastic measures. “