Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/82355
U.S. Hotel Transaction Volume, 1998–2012 10 15 20 25 30 35 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F Source: Jones Lang LaSalle Hotels 0 5 Inn, a 21-room property with poor performance sold for $3.1 million and the Chanric Inn, a seven-room small inn at peak performance sold for $2.75 million. Both properties are located in Calistoga, Calif." Hebold and Corrigan both say that local banks and credit unions are willing to fi nance hotel deals in their markets, oſt en using the SBA 504 loan program, particularly for transactions under $10 million. "For larger transactions, regional and national lenders will lend, but only at conservative loan to values in the 60 percent to 65 percent range," Hebold says, "and only for premium branded properties that are being acquired by strong buyers who are proven hotel operators." Franchise Activity While well-off tourists are boosting occupancy rates in upscale locales, tourist areas farther afi eld are still suff ering. High gas prices, limited business conference activity, and general economic uncertainty have resulted in weak demand and fl at ADRs for Mon- tana hotels, says Hall. As a result, "Very few full-service hotel sales have occurred over last four years. Most activity is found in the limited-service segment. Buyers tend to be local or regional operators with individual or small portfolio ownership. T ere has been a fair amount of re-branding; loss of franchise may have triggered sales," he says. In the Northeast, Hebold has also seen activity at the economy end of the scale. "New limited-service hotels with strong franchise affi liations located in retail hubs or jetport suburban markets have sold swiſt ly during the past year, generally at 9 percent to 10 percent cap rates," he says. And most new development he sees consists of limited-service hotels with 80 to 120 rooms under Hilton or Mar- riott brands. But, he warns, the lower end of the market is very competitive and price sensitive. "Operators who cannot aff ord to reinvest capital into their hotels are quickly marginalized by both the franchises and guests alike," he says. Outside of major markets, branded economy, select- and limited- service product have seen the most investment activity this year, 24 September | October | 2012 Portfolio sales (in $billions) Single-asset sales (in $billions) with the number of transactions up 80 percent from midyear 2011 to midyear 2012, according to Marcus & Millichap. A number of factors are contributing to this trend. First, the cost of those proper- ties is usually below $10 million, which makes them eligible for SBA fi nancing and within the reach of single inves- tors or regional investment groups who favor local properties. In addition, many investors believe prices for these proper- ties have reached bottom and the lack of available construction fi nancing is keep- ing competitive development in check, particularly in smaller markets. Urban locations are also seeing fran- chise development and transaction activ- ity. In Dallas, much of the activity is franchise driven, says David Schnitzer, CCIM, senior vice president of Venture Commercial in Dallas. "We are seeing need-based development in established entertainment areas or near corporate campuses. Few developers are attempting to get ahead of the growth areas at this time." In San Antonio, "Increase in consumer travel and business demand has led to modest increases in RevPAR and stabilization of newer product built and opened in past three years," says Gerard R.C. Pastrano, CCIM, a senior adviser with Sperry Van Ness who brokered two limited-service hotels to foreign investors in San Antonio this year. He expects continued revenue increases and development in Cen- tral and South Texas, mainly in the Eagle Ford Shale area. "T ere's a very high demand from oil fi eld service providers," he says. "Over 10 new hotels have been built in the 22-county area, everything from independents to national fl ags in very small markets." EB-5 Financing In the Midwest, foreign investors are helping to fi nance some of Milwaukee's current hotel development, due to the use of the EB-5 federal program, which grants visas to foreign citizens who invest $500,000 to $1 million in projects that create at least 10 jobs. T e two-year visa can be converted into a permanent U.S. resident status for investors and their spouses and children. Most of the activity involves redevelopment of older properties. For example, 30 Chinese nationals invested $500,000 each with Gorman & Co., the developer of a 90-room extended-stay hotel in the former Pabst Brewery in downtown Milwaukee. Gorman is also using federal historic preservation tax credits by maintaining many of the original brewery features, such as the brewing kettles and a two-story stained-glass panel. Scheduled to open in 2013, the property will be an independent boutique hotel. Developers of a 200-room Marriott in downtown Milwaukee are also fi nancing the $50 million project through the EB-5 program, combining it with new markets tax credits, a federal program for spurring investment in low-income areas. Commercial Investment Real Estate