Worldwide transaction levels to reach $11 to 13 billion in 2010
In 2009, as investor confidence remained weak, a forecasted $9 billion worth of hotels changed ownership, down 64 percent from the $24.8 billion which traded in 2008. As a number of hotel markets reach their bottom, worldwide transaction levels are forecast to increase to $11 to 13 billion in 2010.
"Across the world, the trading of single hotel assets, mostly valued at up to $100 million, will initiate the recovery. Entrepreneurial transactions that can be financed regionally or locally will be the first to re-enter the market," said Arthur de Haast, global CEO of Jones Lang LaSalle Hotels. "Equity-rich opportunistic buyers will also look at select larger single-asset transactions in global gateway markets, but our 2010 volume forecast assumes there will be few substantial portfolio transactions in the new year."
Following an abundance of intra-regional and global capital flows at the height of the market, which accounted for 58 percent of investments in 2007, cross-border activity declined to 48 percent of transaction volume in 2008. To date in 2009, cross-border activity narrowed further to just 38 percent of total capital invested globally.
The investment landscape in 2010 will remain localised, characterised by subdued cross-border activity as investors remain risk averse and often favour their home markets. The exception to this trend will be some Asian conglomerates and Middle Eastern investors who will likely scour the global landscape for favourable investment opportunities.
"Asian conglomerates are poised to emerge as one of the primary global acquisition groups in 2010 as they seek prime assets in gateway markets, especially in the United States and U.K., playing to currency fluctuations. Furthermore, sovereign wealth funds, primarily from the Middle East but also Asia will aim to place capital in hotels as a hedge against inflation, and will therefore become more active buyers again," said de Haast.
"The lack of availability of traditional lending has spurred the creation of new investment vehicles to acquire hotel loans and assets, and we expect a continuation of this in 2010. The increase in public market activity in terms of IPOs, rights issues, and mortgage and equity REITs will also drive acquisitions," said de Haast. While this new capital will drive an interest in acquisitions, the level will be nominal in comparison to the level of commercial mortgage backed securities (CMBS) debt at the market's peak.
Though global hotel markets continue to experience significant stress, foreclosure activity dotted the news headlines only selectively throughout 2009. Banks and lenders have surprised markets in crisis with their workout approach, which has been more focussed on extending loans and trying to recapitalise debt rather than take foreclosure action.
"As more assets are placed under the control of banks, we expect more of the upcoming sales activity to be driven by banks, which will provide a lift to hotel transaction volumes. Particularly in the U.S. and Europe, banks are reviewing their loan portfolios and determining their next steps. But the number of distressed assets on the market will not come in form of a tidal wave," said de Haast.
All eyes will be on hotel operating fundamentals in 2010 as the market bottoms, flattens, or starts to show growth, depending on its location. While recovery will vary widely across the globe, investors will be watching for three or more months of consecutive year-over-year room yield growth as a sign of stabilisation needed to underpin valuations and boost confidence.
Following the harrowing year of frozen liquidity, stalled transactions and drastic drops in hotel performance and values in many hotel markets globally, 2010 will signal a year of improvement and a fresh pace for opportunistic, cashed-up buyers.
"Savvy buyers who are in a strong cash position and can be aggressive will be able to benefit from the buying opportunities that emerge. Overall, bids will continue to be conservative in 2010, but the early movers stand to capture the most value," said de Haast.
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