If hospitality trades in the US have looked sluggish in 2024, down 20 percent on 2023 volumes and 30 percent on the highs of 2019, it has also been a record year for big ticket deals amid an increasingly sprightly debt scene, with alternative lenders and US hotel CMBS originations proliferating.
“We expect year end transaction volumes to reach a sluggish $18.5 billion,” says Zachariah Demuth, global head, hotels research, JLL. “But deal velocity in the US has increased quarter on quarter, with fourth quarter volumes rising 30 percent on Q3.”
And the story of the year has been record single ticket acquisitions, “with seven trades over $300 million in the second half of the year,” Demuth adds. “Those alone have accounted for about 20 percent of all deals.”
Single ticket deals
Indeed, well capitalised funds saw an opportunity to buy big. The Hyatt Regency Orlando fetched a cool $1.02 billion in the summer, as a joint venture between Ares Management and Houston’s Rida Development picked up the 1,641-room property from Hyatt Hotels. The deal valued the property at $622,000 per key, with the JV financing the acquisition via a $620 million floating-rate CMBS loan.
Another big deal saw the UK’s Henderson Park acquire the 703-key Arizona Biltmore in Phoenix for $705 million from Blackstone. The US private equity giant picked up the property in 2018 from GIC for $403 million, spending around $150 million to upgrade the hotel.
Blackstone also saw the opportunity to offload the 450-key Turtle Bay Resort in Hawaii to Henderson Park and Pyramid Global Hospitality. The Ritz-Carlton flagged property, situated along the north shore of O’ahu, was also originally purchased in 2018, for a pre-renovation price of $332 million.
Henderson Park reportedly struck again in November with a $424 million deal for the PGA National Resort & Spa in Palm Beach Gardens, Florida. Meanwhile, the Reuben Brothers acquired the W South Beach in Miami for a similar volume in October.
In a deal totalling a reported half billion, Marriott International is understood to have acquired the land and leasehold of the 1,218-key Sheraton Grand Chicago Riverwalk from Tishman Realty.
While these deals have helped rescue total volumes, Daniel Peek, president of JLL Americas Hotels & Hospitality group, frames investor caution in the context of a bumpy macroeconomic environment. “The most active investors have included those with less reliance on debt financing, such as REITs or high net worth individuals,” he notes. “We’ve also seen activity from specialised hotel investors, who, unlike private equity, are not weighing the merits of the sector against the appeal of other asset classes.” Interest rate cuts in September, November and December have emboldened investors, he adds, although the announcements didn’t come in time to encourage portfolio trades, which have been conspicuous by their absence.
Leading with luxury
Indeed, 2024 will go down as a year when hardly any portfolios of note changed hands – unless you count a handful of deals where a pair of assets were sold. Probably the biggest of these was Host Hotels & Resorts’ $530 million spend on the 215-key 1 Hotel Nashville and 506-room Embassy Suites by Hilton Nashville Downtown in an all-cash deal with Starwood Capital, Crescent Real Estate and High Street Real Estate Partners. Host continued its focus on luxury properties when it picked up the 1 Hotel Central Park in New York City for $265 million a couple of months later. Host president and CEO Jim Risoleo says that the group has been pursuing luxury hotels for the past five years, noting: “They have meaningfully outperformed upper upscale and other segments in the lodging space over extended periods of time.” Host also owns Miami property 1 Hotel South Beach.
Also in the luxury segment, the Eau Palm Beach Resort & Spa in Manalapan, Florida was sold for just over $300 million by the London-headquartered Lewis Trust Group. The buyer was tycoon Larry Ellison, co-founder of computer software company Oracle.
The Thompson Central Park NY achieved a deal volume of over $300 million, as Miami-based real estate investment firm Gencom picked up the 42-storey hotel with 587 keys. The major property joins Gencom’s luxury portfolio as the firm continues to grow its partnership with Hyatt. The deal also marks Gencom’s debut in New York City, notes chief investment officer Alessandro Colantonio. “As Gencom continues to acquire trophy hotel assets in core US markets, we were able to secure the acquisition of Thompson Central Park, marking our entrance into one of the world’s top hospitality markets and a great addition to our portfolio of prized hotel and resort properties,” Colantonio says.
While luxury trades were certainly among the year’s most conspicuous deals, they aren’t the whole story, says Peek. “The luxury deals stand out, but there is always a lot of liquidity in the sub $50 million category. Sometimes budget hotels go on the market as portfolio deals, but it becomes more accretive to then sell them as single assets. That is often the case in a higher interest rate environment.”
The select service segment is in fact still attracting buyers, evinced by deals such as Blackstone selling G6 Hospitality, owner of the Motel 6 and Studio brands, for $525 million to Oravel Stays. However, there have also been signs of struggle in the budget segment, where softening occupancies suggest that spending power remains an issue amid a complex macroeconomic outlook. On the one hand, budget can benefit when the middle classes feel pinched enough to “trade down”, says Demuth. On the other, there are signs that inflation is cutting into travel budgets altogether, notes Peek.
Healthy financing environment
Whatever the trouble below stairs, hospitality’s overall appeal has been underlined by the readiness of the financial markets to back quality assets, amid a preference for fixed income products. Towards the end of the year, Chicago-based Strategic Hotels & Resorts announced that it had refinanced a nine-hotel portfolio – including the Ritz-Carlton Laguna Niguel and the Ritz-Carlton Half Moon Bay – with a $1.58 billion CMBS loan. Great Wolf Resorts, a company controlled by Blackstone, arranged a $1 billion CMBS refinancing of 14 properties. Pheonix-based Atrium inked a $985 million five-year CMBS loan for a portfolio of 24 hotels, while Starwood Capital secured $424 million in CMBS for its select-service portfolio.
Says Demuth: “Hotel CMBS was over half of hotel debt origination volumes pre-GFC, at around $25 billion annually. Pre-Covid, it reached $15 billion again, and we’re nearly there this year, at $14 billion.” Alongside this, the banks are returning, says Peek, while “debt funds are a much bigger part of the market than they used to be”.
The jury is still out on what 2025 might bring. Peek warns that while the ongoing “low supply environment” will help underpin higher asset values, it remains symptomatic of the high costs of construction and renovation. He notes that most new luxury hotel developments still need a residential component to underwrite the business plan. Meanwhile, extended stay products or branded residences that “blur the lines between housing and hotels” are increasingly attracting capital. “After this year’s storms in Florida, extended stay products became housing for those whose homes were damaged, or hosted construction and insurance teams that spent time in the area,” Peek says.
Market watchers are also hoping that incoming president Donald Trump, who is also a hospitality investor, will tame inflation and cut regulatory overreach. On the flip side, protectionist US policies introducing tariffs and tackling immigration could yet have the opposite effect, driving up costs.