Midway through 2014, the U.S. lodging sector is delivering plenty of news to keep investors and lenders bullish. While on the ground at the NYU International Hospitality Industry Investment Conference, JLL's Hotels & Hospitality experts announced that the sector is on track to reach $25 billion in transaction volumes in the U.S. in 2014. Driving the forward momentum are factors including:

  • An abundance of equity capital, led by private equity and REITs, but also including a diverse array of other investor types, including off-shore buyers
  • Strong debt markets, including the re-emergence of the floating rate CMBS market
  • The resurgence of the resort sector
  • Rising revenue per available room (RevPAR)

"With $8.3 billion already tallied in hotel transactions in the U.S., 2014 is on track to contribute to the hotel sector's momentum," said Arthur Adler, Americas CEO and Managing Director of JLL's Hotels & Hospitality Group. "There is plenty of available capital chasing assets ranging from high-profile full-service hotels to select service portfolios to resorts in markets across the spectrum."

The Big Three

When it comes to U.S. hotel acquisitions, nearly 60 percent of transaction volume can be attributed to private equity, REITs and off-shore capital.

  • Private equity continues to lead the pack and accounted for one-third of transactions so far this year. While private equity funds pursue product across the spectrum, primary targets include large select service portfolios, luxury resorts and big ticket full-service hotels.
  • REITs continue to prove they are a force to be reckoned and their purchasing volume is anticipated to reach $5 billion this year. REITs target high-quality, branded assets in primary markets.
  • Rounding out the top three buyer types is foreign capital.

Offshore investors are expected to account for a projected $3 billion in transactions in 2014. Asian investors were the most active in 2013, and for 2014 buyers from the Middle East are in the lead.

The Revival of Resorts

Resorts were hit hard by the downturn since the demand fundamentals for two of its largest guest segments – leisure travelers and group business – took longer to recover. However, resorts are proving worth the wait as sales transactions for the asset class reached $2 billion during the first five months of 2014. Recent high-profile resort transactions include The St. Regis Bal Harbour Resort in Miami which sold for $213 million in January 2014, the Ritz-Carlton Kapalua which sold for $142 million in February 2014 and the Parrot Key Resort in Key West which sold for $100 million in May 2014."During the first quarter, resort assets notched nearly 30 percent of total transactions as consumer confidence continues to make gains," said Adler. "Competition is high as resorts under construction make up a mere one percent of the supply of resort properties in the U.S., meaning the sector will experience strong gains in RevPAR as demand continues to grow."

Price(ier) Per Key

High-quality asset transactions have dominated much of 2014's market activity. The average price per room of trades during the first five months of the year is up 15 percent from the same prior-year period, driven by continued RevPAR increases. This year marks the fifth consecutive year of RevPAR growth since the downturn, and the momentum shows no signs of slowing. Secondary markets like Denver, Nashville and Phoenix have experienced exceptional RevPAR growth, all posting double-digit increases thus far in 2014.

"As 2014 marks the fifth consecutive year of RevPAR gains, we believe that the lodging industry is solidly in the middle of a long-term upward trajectory. We believe that this cycle will extend longer than the nine-year run that took place from 1992 through 2000. As we look toward the next two quarters of 2014, we anticipate investors will continue making investments in the lodging sector to capitalize on the sector's strengthening recovery," said Adler. "Strong debt capital markets, plenty of equity capital and more available product have led to positive investor sentiment and rising liquidity."  

JLL's Hotels & Hospitality Group serves as the hospitality industry's global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm's 300 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US $36 billion, while also completing approximately 4,000 advisory, valuation and asset management assignments. The group's hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.

About JLL

For over 200 years, JLL (NYSE: JLL), a leading global commercial real estate and investment management company, has helped clients buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties. A Fortune 500® company with annual revenue of $20.9 billion and operations in over 80 countries around the world, our more than 103,000 employees bring the power of a global platform combined with local expertise. Driven by our purpose to shape the future of real estate for a better world, we help our clients, people and communities SEE A BRIGHTER WAYSM. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.