NEW YORK—Recession? What recession?
The New York hotel transaction market is alive and well, with values and volume quickly approaching 2007 peaks, according to data from STR Analytics and HVS.
There have been 11 hotel transactions completed in New York City thus far in 2011. Sales prices range from US$32.4 million for the Hampton Inn Manhattan Seaport Financial District to US$400 million for the New York Palace.
|
| Roland de Milleret, managing director, HVS' New York office |
“What’s driving value in New York is definitely this strong turnaround. It’s the strongest in the U.S.,” said Roland de Milleret, a managing director of HVS’ New York office. “It’s also a highly desirable market, not only for U.S. investors but also for the rest of the world. That defiantly puts (upward) pressure on values.”
While New York City’s 2011 performance through April has been somewhat sluggish—occupancy actually fell 2.3% during that time, though revenue per available room grew 3.4%—year-end 2010 results show an occupancy gain of 5%, an increase in average daily rate of 7.5%, and a double-digit jump in RevPAR of 12.9%, according to STR, parent company of the Hotel Investment Barometer.
“Everyone goes back to the high performance of the market,” de Milleret said. “… The market turned around very, very strongly.”
NYC transactions
REITs have led much of the buying spree in 2011. During April, Hersha Hospitality Trust purchased the 120-room Holiday Inn Express Wall Street and the 81-room Hampton Inn Financial District for approximately US$69.1 million, or US$358,000 per key, plus closing costs and fees.
The total purchase price on the assets represents a first year economic capitalization rate of 8.1% and an earnings before interest, taxes, depreciation and amortization multiple of 11.8 times, according to a release from Hersha. The company estimates that on a stabilized basis the assets are being purchased at a stabilized cap rate of approximately 10.1% or an EBITDA multiple of 9.1 times. The assets will be managed by Hersha Hospitality Management, L.P.
The Hampton Inn is a re-development project which was begun in 2008, according to the Hersha release. The company acquired the building for cash and converted its US$8 million mezzanine loan on the project to equity. Completion of the project, including FF&E update and full conversion to a Hampton Inn, is expected to cost approximately US$4.5 million and will be completed by the first quarter of 2012.
Another notable REIT transaction can be attributed to FelCor Lodging Trust. The company in May acquired the fee-simple interests of two midtown Manhattan hotels from Morgans Hotel Group Company, which will continue to manage the properties. The 168-room Royalton was purchased for US$88.2 million, while the 114-room Morgans closed on a bid of US$51.8 million.
“FelCor's estimated internal rate of return on this investment exceeds 12%, which is above its weighted average cost of capital, creating incremental long-term shareholder value,” the company said in a press release. “MHGC is providing structural support by subordinating its management fees (if necessary) to a minimum return to FelCor. Hotel EBITDA in 2011, for our period of ownership, is expected to be between (US)$6.0 and (US)$6.5 million.”
The most recent transaction, however, was sponsored by a private investor. Earlier this month, Gehr Development bought the 244-room Four Points Time Square from The Lam Group for US$112 million.
The majority of market transactions have been all-cash, de Milleret said, but financing is returning in certain cases.
“It’s still fairly selective. It depends on the brand, the location, the sponsor,” he said. “But depending on how strong the RevPAR is, I could see the financing coming back maybe within a year or two—maybe less.”