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.
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25 March | April | 2015 CCIM.com Table 4: Buyer and Seller Activity by Dollar Volume ($)* ($ Millions) As Buyers As Sellers 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Equity Funds $501 $1,668 $3,161 $2,658 $6,623 $7,414 $240 $1,208 $3,331 $3,025 $5,672 $7,030 Hotel Companies $378 $1,238 $1,605 $2,458 $2,931 $4,402 $634 $2,802 $2,673 $2,208 $5,538 $6,857 Individual Owners $1,193 $1,224 $1,349 $975 $2,069 $2,331 $995 $1,930 $1,787 $1,863 $1,715 $2,702 Total Privately Held Companies $2,072 $4,130 $6,115 $6,091 $11,623 $14,147 $1,869 $5,940 $7,791 $7,096 $12,925 $16,589 REITs $197 $3,144 $3,719 $3,422 $4,516 $6,373 $335 $282 $482 $961 $3,032 $2,739 Hotel Companies $203 $0 $165 $12 $811 $847 $166 $563 $677 $1,057 $755 $1,594 TOTAL Publicly Traded Companies $400 $3,144 $3,884 $3,434 $5,327 $7,220 $501 $845 $1,159 $2,018 $3,787 $4,333 Other Entities $217 $433 $287 $363 $414 $694 $319 $921 $1,338 $773 $653 $1,140 TOTAL DOLLAR VOLUME $2,689 $7,706 $10,287 $9,887 $17,365 $22,061 $2,689 $7,707 $10,287 $9,888 $17,364 $22,061 *Excludes M&A; Activity. upscale portfolio opportunities. LE foresees prices continuing to rise for the next few years as f nancing is likely to remain accom- modative and competition for these assets intensif es. Buyer and Seller Activity For all hotels with a reported selling price, investment totaled $22 billion. Equity funds were the most active investors in 2014 pur- chasing $7.4 billion in hotels, most of which were part of portfolios. (See Table 4.) Publicly traded REITs were the next big- gest acquirers and invested $6.4 billion, pri- marily purchasing high-prof le single assets divested by privately held hotel companies and individual owners. Privately held hotel companies were also significant buyers, investing $4.4 billion, mostly in single assets and smaller portfolios. T e biggest sellers in 2014 were privately held hotel companies and equity funds. Buy- and sell-side dollar totals for equity funds are usually in approximate balance because they frequently trade their portfolio to one another. Minor variances in the totals can typically be attributed to when funds either add or prune hotels from existing portfolios. A Sweet Spot Ahead As the second year of the cycle's expansion phase begins, the industry f nds itself enter- ing a signif cant sweet spot. T e economy is solid, hotel operating metrics are at or near record highs, and hotel prof tability is very strong. Interest rates are low and funding is readily available. T e foreseeable future is very bright. For developers, rapidly increasing sell- ing prices have already made it cheaper to build hotels than to buy. Soon new project announcements entering the construction pipeline will quicken and, two to three years later, exit the pipeline as new hotel openings. T at surge of new supply, coupled with a slowing economy and tapering hotel perfor- mance, will signal the end of this real estate cycle. It will be preceded by a f urry of Wall Street activity as the industry consolidates companies and brands. Af er a slow start to the recovery, there is mounting optimism that great opportunity is ahead for the hotel industry. A solid four to f ve year run up is possible, barring any unforeseen exogenous event. Patrick H. Ford is chairman, CEO, and founder of Lodging Econometrics, National Hotel Realty, and New England Hotel Realty. Contact him at www.lodging econometrics. com. Ingram Publishing/Thinkstock