When it comes to hotel investing, the Americas Lodging Investment Summit (ALIS) in Los Angeles last week saw the announcement of five dynamics driving the market by Jones Lang LaSalle's Hotels & Hospitality Group (JLL). To comparison with the previous three-year average, JLL predicts that worldwide hotel deal volume will remain flat in 2013, while there will be evidence of a rise in hotel transaction activity in the Americas sooner rather than later. directorys
When the $55 billion in CMBS maturities occur over the next three years, there will be a large quantity of property coming to market in 2013, and investors who invested earlier in the cycle will want to sell in order to realize their capital gains. "Many hotels today are owned by traders rather than holders, thus it's important to consider the long-term structure of hotel ownership."
Investors should keep tabs on the following five important elements and how they affect the hotel market:
Do you think the economy will do well or do badly? Global deal volume might reach $33 billion this year, according to the most recent three-year average, and could rise to $50 billion to $70 billion over the medium term. An estimated $3.2 billion has been invested in hotels in the United States by foreign investors since 2010, with this trend projected to continue in the years ahead.
The following factors have an impact on the volume of hotel transactions: The United States will continue to account for half of global deal activity as long as the fundamentals are strong. Transaction volume has a significant impact on improving industry fundamentals, capital availability and expense, REIT stock prices and product availability, as well as the makeup of hotel ownership.
For now, cash is king, but debt is on the rise: Due to the recovery of the CMBS market last year, it helped to improve borrower pricing and terms, as well as attract new lenders to the hotel industry. The increasing CMBS lending would be supplemented by domestic and offshore banks, insurance firms, debt funds and mortgage REITs, resulting in a six-year peak in debt supply.
Increasing the market worth of a hotel: Increasing top-line revenue enables company leaders to focus their efforts on revenue management and analytical tools that are both more complex and effective in protecting profits while also preserving asset value. Third-party travel agents and increasing competition for customer loyalty would place further strain on operators, increasing the overall costs. Hotels will have to invest more in digital marketing operations and utilise online travel agents as part of a diverse distribution channel strategy.
Let the games begin in Latin America: From 2000 to 2020, the economies of Latin America are forecast to grow at a 4% annual rate, with a 25% increase in the region's proportion of global GDP. Brazilian events such as the 2014 FIFA Soccer World Cup and the Summer Olympic Games will encourage economic decentralization and make the region more desirable for hotel development. Brazil, Mexico, Colombia, Peru, and Chile will drive the increase.
As long as the fundamentals of hotels' operations are strong, they should remain an attractive asset class among lenders, institutional investors, and offshore investors. As loan becomes more readily available and competitively priced, asset prices and transaction volume should rise.