National Hotel Transaction Results

Historical Sales 2010 - 2013

By Scott Biethan, MAI, CRE, FRICS

 

INTRODUCTION

CBRE Hotels is pleased to present an analysis of historical hotel sales data, covering U.S. transactions from 2010 through 2013. The results represent select completed sale transactions with researched and reported prices and rates-of-return indications (overall capitalization rates), and display the aggregation of actual deal points. With the combined insights of our Brokerage and Valuation professionals, this report illustrates broad market trends in hotel sale transactions, and provides a look at recent and current pricing metrics. Further, given that the data is generated by CBRE Hotels’ professionals, the resulting averages are prepared with industry-specific knowledge.

Key points from the survey include:

Overall (Capitalization) Rates

  • Between 2010 and 2013, overall cap rates for full-service hotels remained relatively flat, moving from 7.74% to 7.70%, a modest net change.
  • Overall cap rates for limited-service hotels moved from 8.86% in 2010 to 9.14% in 2013, also a modest net change. 

Room Revenue Multipliers

  • Between 2010 and 2013, room revenue multipliers for full-service hotels declined slightly, from 4.62 to 4.22.
  • Room revenue multipliers for limited-service hotels stayed in a relatively narrow range between 2010 and 2013, edging down from 3.36 to 3.31.

Average Sales Price per Room

  • Between 2010 and 2013 the average sales price per room for full-service hotels rose from $163,306 to $198,303 in 2013.
  • The average sales price per room for limited-service hotels increased from $58,046 to $78,956 during the same period.

2014 continues to hold promise as interest in both the limited-service and full-service sectors remains strong. Significant capital is available in the sector, and many of the major markets have good underlying fundamentals. The only cautionary note is possible new supply growth and some uncertainty in global events that may impact the perception of the economy.​

 

 

Capital Markets Update*

Last month, more than 120 CBRE Capital Markets professionals attended the 2014 Mortgage Bankers Association Commercial Real Estate Finance meetings in Orlando, Florida. This is the largest annual gathering of commercial lenders and mortgage bankers in the U.S. As expected, it was an optimistic group, with abundant capital throughout the stack. We are pleased to share these insights with our valued clients.

The following summary includes our high-level takeaways from the conference, as well as a more detailed look at each major lender group. We trust that you will find this information valuable as you execute your business plans in 2014.

Key Takeaways

  • There is tremendous liquidity in the commercial mortgage markets leading to strong competition among lenders.
  • Continued attractive interest rates notwithstanding, there is an expectation of U.S. Treasury yields rising. CBRE expects credit spreads to compress further, especially for core deals with lower LTVs.
  • The consensus is for a gradual easing of underwriting standards as the competitive landscape increases. This will include higher LTVs, more interest-only components and increased lending activity in secondary markets.
  • Finance markets remain inefficient and unpredictable. Given the competition, it is difficult to predict which lender will win a given deal and most deals should be widely marketed into the debt capital markets in order to capture the best available loan structure and economics. It remains a borrower’s market for 2014.
  • Shorter loan terms are expected in 2014 as borrowers seek lower rates and take advantage of the steep yield curve.

Lender Round-Up

CMBS - With almost 40 CMBS lenders in the marketplace, competition is fierce to win business. CMBS lenders’ confidence and enthusiasm remain very high. Consensus industry predictions for 2014 CMBS issuance is $125 billion, well above 2013’s $86 billion and 2012’s $48 billion. 70% LTV is now “full leverage,” for hotels but CBRE expects significant pressure to move this above 70% during 2014 for quality assets. Rating agencies currently remain firm at 70% of appraised value. 10-year spreads are currently 200 to 230 bps over swaps at 70% LTV. This currently provides a fixed rate for 10 years of approximately 4.90% to 5.20%. 10 to 12 B-piece buyers remain active, a higher number than in 2007. This helps CMBS platforms securitize their loans and streamlines the process for borrowers. The great majority of CMBS deals were for 10-year terms, but five- and seven-year terms are becoming more available.

Life Companies - Most life companies have 2014 allocations that exceed their 2013 production by 10% to 15%. Many of the major life companies have expanded their offerings related to higher-yielding products, including mezzanine, bridge and other structured loans, as they continue to seek yield. However, their determination of value is likely more conservative than that of the borrower or appraiser. Five-year fixed rates are in the low- to mid-4% range for stronger deals and in the low to mid-5% range for a 10-year term at 65% LTV. Terms can go as long as 30 years with some of these lenders. A few life companies maintain construction-to-permanent loan programs which offer an excellent means of mitigating the interest rate risk on the permanent loan component. Those programs are targeted to build-and hold developers.

Commercial Banks - Remain very active, with many pricing floating rate loans over LIBOR. For the very strongest, lower leverage deals, we have seen LIBOR plus 150 bps or lower. They can compete with life companies, especially at the higher LTVs, when utilizing swaps to fix the rate for the loan term. Many banks are very active in bridge lending and for value-add deals. Many commercial banks still require recourse, but money is available from banks on a nonrecourse basis. Three- to five-year loan terms remain the sweet spot for most of the banks, but some will stretch to seven and 10-year terms.

Bridge Lenders and Mezzanine Loans - A large number of bridge lenders are active and a 2+1+1 or 3+1+1 structure prevails. Pricing starts in the high-4% range, with structuring for good news money. There is a lot of capital available for mezzanine loans to 85% loan-to-cost. For stronger deals, pricing starts around 7% at 70% LTVs.

Interest Rate Outlook

  • The 10-year U.S. Treasury crossed the 3% threshold in late December before slipping back to the 2.7% range on concerns over growth in the emerging markets.
  • We expect this pullback in interest rates to be temporary and the long end of the yield curve should trend up in 2014, along with the taper of the Fed’s quantitative easing program.
  • The emerging-market concerns have pushed capital into safe assets including government debt. This move has resulted in a pause on the rise of the long end of the yield curve.
  • We expect that even with a slowdown in the emerging markets, growth in the developed markets will continue and create upward pressure for rates in 2014.

    
    *Content for the Capital Markets Update from:       
      CBRE's Commercial Mortgage Update: Notes from the MBA Annual Meeting
      By Jim Costello, Managing Director, Americas Research and 
      Brian Stoffers, Chief Operating Officer & President, Capital Markets, Debt & Equity Finance

     

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