Economy/Credit Market Meltdown Take Toll on Hotel Real Estate Sales in 2008

KANSAS CITY, Mo., May 6, 2009—Officials of Hotel Brokers International (HBI), the nation’s largest brokerage organization with more than 30 offices coast to coast, today released its TransActions Recap 2009, a comprehensive report on hotel real estate activity for 2008 and the organization’s forecast for 2009.

As a result of a deepening recession and hobbled credit markets, hotel transaction dollar volume in 2008 plunged 55 percent to $9.9 billion from $21.9 billion in 2007.

HBI believes the downtrend will continue in 2009, although volume in the second half should improve, due to pent-up demand and as commercial lending begins to respond to government stimulus efforts.

The 115-page publication, detailing more than 3,000 hotel transactions over the last five years, is available from HBI for $200.

“We believe these have been the most challenging conditions in our 50-year history, with the late 80’s/early ‘90’s a close second,” said Jeff Westgor, (top left photo) CHB, president, Westgor & Associates, Minneapolis, and president of HBI.

“Overall, the number of hotel transactions in 2008 was at its lowest level in five years.

"The one-two punch of a severe economic recession and a dysfunctional credit market, suffering from the disappearance of CMBS debt, has had a major impact on our industry, which previously had experienced five years of significant increases fueled by easy access to capital and the growth of RevPAR and earnings.”

(The Hilton Oak Lawn (top right photo) is a 12-story, 184-room hotel and conference center located three miles south of Chicago's Midway Airport. The hotel sold in January 2008 for about $100,000 per room. Donohoe Real Estate Services, Washington, DC, brokered the sale.)

Credit Crunch Biggest Impact on Transactions
Westgor added that the credit crunch had the biggest impact in 2008 on larger dollar transactions, those over $10 million.

According to HBI recorded data, sales of upscale and luxury hotels were off 57 percent, while sales of economy and mid-market properties, which account for the lion’s share of HBI transactions, remained relatively stable, down 11.2 percent.

Westgor noted that financing became significantly more difficult to obtain by mid-summer last year.

According to a recent HBI lending survey, by year-end 2008, some 75 percent of lenders said that they had reduced the number of hospitality loans underwritten.

With the capital markets seizing up, sales in the second half of 2008 declined by 24 percent, with upscale and luxury hotel sales falling 44 percent compared to economy and mid-market sales, which were off 11 percent in the second half.

For the full year, HBI recorded 481 hotel sales industry-wide, down 35 percent compared to 736 transactions in 2007. The average hotel sold had 146 rooms and sold for a price per room of $99,000, a 15 percent decline from 2007, driven primarily by a lower average price per room for upscale and luxury hotels.

The economy and mid-market hotels’ price per room held up, posting a slight increase from $42,000 in 2007 to $44,000 in 2008.

Sales of mid-market properties accounted for nearly 50 percent of all hotel transactions in 2008.

The most popular hotel segment among buyers was select-service without food and beverage, with 140 transactions, led by a high demand for brands such as Hampton Inn, Comfort Inn and Holiday Inn Express. Upscale with restaurants was the second most preferred segment at 112 transactions, with Courtyard by Marriott, Residence Inn and Hilton Garden Inn heading the list.

Contacts:

Glenda Webb, Hotel Brokers International, (816) 505-4315

Melanie Boyer, Daly Gray Public Relations, (703) 435-6293