At the NYU Hotel Investment Conference, the mood of attendees was markedly divided.
Operators liked what they saw so far this year, and managers and brands felt good about continued pricing power and urban hotel recovery. On the other hand, developers, brokers and finance professionals bemoaned the lack of activity. The second quarter data hotel transaction data proves out this trend.
Total transaction volume was around $3.5 billion, a sharp 70% fall from the second quarter of 2022. Compared to the second quarter of 2019, the decline was a pronounced 49%.
Some notable transactions closed during the past 90 days. A 75% stake in the Mandarin Oriental Hotel New York was bought by India-based Reliance Industries for $215 million, which valued the total asset at around $278 million.
Sellers were The Related Companies and Investment Corporation of Dubai. Reliance Industries also owns the luxury Oberoi brand but no comments about a possible reflagging were made. The company intends to buy additional condominiums in the complex to possibly increase the hotel room count.
The 192-room St. Regis Chicago sold days after officially opening by the developer Magellan Development Group to Gencom and GD Holdings out of Denver.
The sales price of $94 million equates to around $489,000 per key. The hotel was originally conceived as the Wand Vista Tower and broke ground in 2016. The building also includes 393 condominiums.
Looking ahead to the second half of the year, it is hard to envision a catalyst that will jump-start transaction volume, short of the Fed announcing a decrease in the Fed fund rate.
Absent this unlikely scenario, debt costs for hotel transactions will continue to rise and make deals harder to pencil.
Owners who do not have to sell, will not. Owners who have debt coming due will likely also try to avoid selling at a discount, and will more likely take on expensive debt for a short period of time, hoping that interest rates fall in coming years.