Over $12.5 billion worth of hotel properties traded hands in the first three months of the year, marking the best opening quarter since 2016. Investor interest remains strong, continuing the trend from 2021 in which CoStar reported total annual asset sales volume of $50 billion, the highest ever recorded.
In high-inflation environments, hotels, which can reset their rates nightly, are seen as an inflation hedge and become more attractive to investors looking to counterbalance their exposure in assets with long lease terms, such as office and multifamily.
Investor interest is met by institutional sellers eager to shed investments in underperforming markets, such as New York, San Francisco and Chicago. Sunstone Hotel Investors disposed of two hotels in Chicago — an Embassy Suites and a Hilton Garden Inn — for a combined $129.5 million, or $178, 000 per key.
Properties with strong leisure appeal continue to trade at healthy multiples as demand from American leisure consumers remains high. Outside the typical resort locations, the sale of the W hotel in Nashville fits the profile of an urban destination. Xenia Hotels and Resort paid $328.7 million for the property, which equates to $950,000 per key. Along the same lines, the leasehold interest of the former Fashion Island Resort was sold for $143.6 million, or $486,780 per key, to be converted to the Pendry Newport Beach. Of the 20 deals with the highest prices per room, 13 properties are in Florida and California, pointing at the continued investor interest in these states.
Total 2021 sales volume was buoyed by portfolio sales, such as the $6 billion take-private transaction of Extended Stay America. As the industry continues its recovery, further portfolio sales are likely, as active funds are eager to deploy their capital. The expected interest rate increases throughout the year will likely also be a catalyst for higher trading activity in the short term.