Headlines – Week of August 1, 2010
August 8, 2010
Headlines – Week of August 1, 2010
California Hotel Defaults More Than Double Since 2009
The hotel segment of the real estate market has been one of hardest hit during the Great Recession. According to an article published by Globest.com, the number of defaulted and foreclosed hotels in California continued to rise in the second quarter, climbing by 18% between the first and second quarters and increasing by 132% since the second quarter of 2009. The information in Globest.com was quoting information in a new report from Irvine-based Atlas Hospitality Group.
The survey from Atlas shows that 478 California hotels are in default or have been foreclosed upon, but the company believes the true number of distressed California hotels is much higher, with “over 1,000 properties operating under some form of forbearance agreement.”
Although banks and special servicers are still practicing an “extend-and-pretend” approach to troubled properties, there are signs that both are turning to foreclosure more readily, especially special servicers, who are “being more forceful in taking back hotels,” according to the report.
Many of the defaults are a result of the Extended Stay America from bankruptcy which account for about 20% of the properties on the Atlas default list.
The report notes that of the 100 California hotels that had been foreclosed on as of the second quarter, only 12 had been resold to new investors. At the current levels of sales and foreclosures, the long-term outlook is that the distress in the state’s hotel market would take about four to five years to work through.
STR Reports First-half 2010 Results
According to a report by Smith Travel Research, the U.S. hotel industry reported mixed results in the three key performance metrics for the first half of 2010 in year-over-year measurements.
The industry’s occupancy was up 4.4% to 56.4%, average daily rate fell 2.0% to $97.18, and revenue per available room increased 2.3% to $54.80.
In second-quarter 2010, occupancy increased 6.2% to 60.7%, ADR ended the quarter flat at $97.87, and RevPAR increased 6.2% to $59.44.
The report indicates that first-half and second-quarter U.S. hotel industry performance demonstrated improvement from 2009-particularly on the demand (rooms sold).
ADR growth is slowly improving, primarily at the upper-end, and STR expects continued gradual improvement through the second half of the year. STR is forecasting full-year 2010 RevPAR growth of just over 5%, driven almost exclusively by occupancy gains.”
In the first half of 2010, 23 of the Top 25 Markets experienced occupancy increases.
Boston, Massachusetts, led the increases, rising 14.8% to 65.4%, followed by Detroit, Michigan (+11.2% to 51.4%), and New Orleans, Louisiana (+10.7% to 66.7%). Houston, Texas, reported the largest occupancy decrease, falling 4.6% to 56.7%, followed by Norfolk-Virginia Beach, Virginia, with a 2.9% decrease to 49.6%.
New York, New York, posted the largest ADR increase, rising 5.4% to $209.42. Tampa-St. Petersburg, Florida, reported the largest ADR decrease, falling 10.7% to $97.98, followed by Detroit with an 8.5% decrease to $75.29.
Four markets achieved a RevPAR increase of more than 10%: New York (+15.2% to $165.56); Boston (+13.7% to $89.39); New Orleans (+12.4% to $81.66); and Miami-Hialeah, Florida (+11.0% to 117.33). Houston dropped 10.0% in RevPAR to $51.60, reporting the only double-digit decrease in that metric.
Mid Year 2010 Major US Hotel Sales Survey
The CB Richard Ellis Mid Year 2010 Major US Hotel Sales Survey includes 42 single-asset sale transactions of more than $10 million each that are not part of a portfolio allocation.
These transactions totaled more than $1.8 billion and include 11,700 hotel rooms with an average sale price per room of $158,000. During Q2 2010, 28 sales transacted for a total of more than $1.1 billion, as trade activity continues to outperform on a quarter-over-quarter and year-over-year basis, according to an analysis written by Daniel Lesser featured on GlobeSt.com.
Notable observations from the CB Richard Ellis Mid Year 2010 Major US Hotel Sales survey include:
- Heightened transaction activity has clarified capitalization rates, both on a trailing 12-month and projected year-one basis, but offer limited transactional insight as they display a broad range from negative to upwards of 10% for quality assets;
- Coming off of severely depressed 2009 operating metrics, United States hotel transaction pricing is not capitalization rate-based, but rather predicated on discounted cash-flow analysis that factors in perceived upside during the next several years;
- Public companies, both seasoned (i.e. Sunstone Hotel Investors, LaSalle Hotel Properties, DiamondRock Hospitality) and newly formed entities (i.e. Chesapeake Lodging Trust, Pebblebrook Hotel Trust) dominate the acquisition landscape;
- Private equity groups that are exclusively focused on the hotel sector (i.e. HEI Hotels & Resorts, Noble Investment Group, Apple Nine Hospitality) also are actively deploying capital to acquire U.S. hotel assets;
- The highest price per room paid was $600,000 for the Buckingham Hotel in New York. When compared with the Qatar Investment Authority’s recent acquisition of the Raffles Singapore at $2.7 million per room, U.S. hotel assets are relatively inexpensive.
Posted by Scott R. Lodde