REPORT FROM THE U.S.—Now’s the time to buy for investors looking to expand their footprint in New Orleans, according to hotel valuation experts.
The city is one of only two top 50 U.S. Metropolitan Statistical Areas that has returned to pre-recession peaks, according to PKF Hospitality Research. And with a steady flow of tourists and infrastructure investment post-Katrina, the good economic times look to continue.
“We’re through the valley and really on the way up. Sooner rather than later would be a better time to buy,” said Paul Breslin, managing partner with Atlanta-based hotel consultancy Panther Hospitality.
Breslin, who previously worked for four years at the Sheraton New Orleans, has since conducted a number of assignments for prospective buyers in the market.
New Orleans is a natural market of interest for any portfolio holder, he said.
“If you have a good solid portfolio and you want to be in the major destinations, New Orleans is one of those major destinations,” Breslin said. “…It should be on the radar on the top hotel developers and owners. And if you have an asset there, be sure that you get a good price for it if you sell it.”
Some transactions Big, but far from Easy
By and large, sellers have done just that. Transaction volume for hotel sales in the market are more than US$150 million thus far through 2011, according to Adam Lair with HVS Consulting and Valuation Services in Atlanta. The number represents the largest volume since Hurricane Katrina decimated much of the city in 2005.
During 2010, five hotels traded hands for a total dollar volume of approximately US$50 million, Lair said.
The largest transaction, according to STR Analytics, sister company of the Hotel Investment Barometer, was for the JW Marriott New Orleans, which Clearview Hotel Capital LLC sold in February for US$93.8 million to Sunstone Hotel Investors.
The all-in cost for the transaction represented a 12.8-times earning-before-interest-taxes-depreciation-and-amortization multiple based on the hotel’s 2010 results of operations. The acquisition included the assumption of a US$42.2 million floating-rate, non-recourse senior mortgage. The mortgage, which matures 1 September 2015, was swapped to a fixed-rate of 5.45% and is subject to a 25-year amortization schedule.
Other transactions in the city include the sale of the Chateau Bourbon, a Wyndham Hotel; The French Market Inn Hotel; and the TownePlace Suites in outlying Metairie, according to HVS.
The 2011 transaction volume likely would be higher if not for the economic downturn, according to Randy McCaslin, VP and practice leader in PKF’s Houston office.
“Unless you’ve got an awfully large pool of cash, it’s very difficult to buy a big asset like (the JW Marriott),” he said.
Market outlook
After finishing 2010 with a 14.7% increase in revenue per available room, the New Orleans hotel market continues to post strong results, according to STR, parent company of the Hotel Investment Barometer.
Through October 2011, the year-to-date data shows average daily rate was up 5.5% to US$122.44 and RevPAR was up 5.4% to US$80.29.
The New Orleans hotel industry did better last year than hotelier’s thought given such tough comparables, McCaslin said. “People just want to go there. … They’ve forgotten about Katrina. That’s history. … As far as a hotel and tourism market, they’ve had unbelievable growth since the recession.”
That momentum is likely to continue during 2012, the sources interviewed for this report agreed. New Orleans has seen sustained investment in its infrastructure since the hurricane, Lair said.
“You’re seeing the seeds that were sown right immediately after the hurricane blossoming here as we come out of the recession, which really didn’t hit New Orleans really hard,” Lair said.
Major projects in the city include a biomedical corridor, which will be home to a new hospital, and reviving the sports and entertainment district around the Superdome, which recently was rebranded as the Mercedes-Benz Superdome.
McCaslin also pointed out major sports events that likely will attract hundreds of thousands of people to the city in the coming year, including the BCS Championship and the NCAA Final Four games. The city’s also scheduled more conventions than at any time pre-Katrina.
“2012 and ’13 are just going to be record years,” he said.
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