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/475894
24 March | April | 2015 Commercial Investment Real Estate 3 percent, providing a natural brake to the development cycle later in the decade. Transaction Volume Still Sluggish Transaction volume bottomed in 2009 with 528 reported transactions and prop- erty transfers, marking a low for the previ- ous cycle. In 2014, 1,292 hotels transacted or transferred ownership. Over the last f ve years, total transaction volume has ranged between 1,261 and 1,457 hotels, a narrow range far distant from the 3,218 transactions and transfers reported in 2007. (See Table 2.) In 2014 there were 799 single-asset transac- tions and 481 hotels changing ownership in portfolio sales. A mere 12 hotels were recorded as part of merger activity, indicating that any signif cant industrywide consolidation of companies and brands may still be a few years away. Table 1: Construction Pipeline by Project Stage Table 2: Total Transactions Table 3: Average Selling Price Per Room* Source: Lodging Econometrics Stage 2011 2012 2013 2014 Projs Rms Projs Rms Projs Rms Projs Rms Under Construction 458 57,675 630 80,740 793 101,735 1,086 136,442 Start Next 12 Months 883 97,604 858 99,059 1,156 141,140 1,351 160,061 Early Planning 1,412 179,433 1,269 161,405 1,071 140,083 1,208 164,048 Total Pipeline 2,753 334,712 2,757 341,204 3,020 382,958 3,645 460,551 2009 2010 2011 2012 2013 2014 Single-Asset Transactions 504 544 824 658 890 799 Portfolio Transactions 24 124 233 789 404 481 M&A; Property Transfers 0 690 204 10 1 12 Total Transactions 528 1,358 1,261 1,457 1,295 1,292 2009 2010 2011 2012 2013 2014 Transactions* 427 513 686 578 977 935 Average Selling Price Per Room $57,434 $108,494 $104,652 $113,878 $129,347 $156,002 *For Transactions with a Reported Selling Price Most portfolio transactions consist of select-service hotels — the favored hotel type for private equity groups that assemble portfo- lios. Equity group buyers will of en reposition certain hotels further up market with a new brand to extend their product life cycle, while other hotels undergo a less comprehensive renovation program to bring them current with the existing brand's standards. Portfolios are generally sold af er a f ve- to seven-year holding period, of en to other equity groups. Frequently the sale proceeds are quickly reinvested to assemble new portfolios, a par- ticularly opportune strategy today since there are still a number of highly prof table years remaining before the current cycle ends. Real estate investment trusts and high net- worth investors were signif cant purchasers of large luxury and upper-upscale hotels that come to market infrequently. When com- bined with private equity groups, these inves- tor groups collectively created a shif in 2014's transaction mix. For the f rst time in this cycle, more than 50 percent of all hotel trans- actions occurred in luxury, upper-upscale, and upscale chain properties. Selling Prices Rise Total lodging industry investment in 2014 was $30.8 billion. Of the 1,292 hotels that were transacted, 935 reported a selling price into the public domain and had an average selling price of $156,002 per room, up a dramatic 20.6 per- cent YOY. (See Table 3.) T e healthy increase in selling prices is due to low interest rates and the availability of attractive f nancing terms. Prices are fur- ther driven by the intense competition for large, well-located high-end single assets and