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Will Sale of 14 Wyndham Hotels Break the Transaction Logjam?

If hotel sales finally rebound in 2003, market watchers may point to one of the last deals of 2002 as a crucial moment. In December, Dallas-based Wyndham International sold a 14-hotel portfolio to Westbrook Hotel Partners of Boston for $517 million. The deal included two separate transactions — a 12-hotel portfolio that sold for $414 million in early December, and another two hotels that were sold later in the month for $103 million.

Coming at the end of a year of weak hotel occupancies and plummeting transaction volumes, the Westbrook deal was greeted by brokers as a positive sign. Through the third quarter, just 184 hotel sales had taken place vs. 570 in the first nine months of 2001, according to Atlanta-based Hospitality Research Group, a division of PKF Consulting.

“I would like to think that it is a bellwether for these transactions going into next year,” says Tom McConnell, a senior managing director in the New York office of Insignia/ESG Hotel Partners, which advised Wyndham on the sale. Atlanta-based Thompson Calhoun Fair and The Plasencia Group of Tampa also advised Wyndham.

Higher pricing would have made the deal a more concrete sign of a market turnaround, however. The transaction comes out to about $106,000 per room. McConnell estimates that, due to declining industry fundamentals, that price is about 15% to 20% lower than the cost per-room would have been in 2000.

The sale — which included Marriott, Hilton, Radisson, Doubletree and Hyatt hotels — is part of a strategic disposition push by Wyndham to sell 54 of its non-Wyndham branded assets, according to Mark Fair, principal at Thompson Calhoun Fair. That process began in 2000, but this sale is the first large portfolio Wyndham has closed. Fair says the deal was a winner for Westbrook, too, because it added a number of East Coast hotels to its mainly West Coast holdings.

McConnell says hotel fundamentals, including occupancy, average daily rate (ADR) and revenue per available room, are expected to improve next year and that should encourage sellers to enter the market. However, all of the major indicators fell in 2002, including ADR, which had fallen from $99.17 to $94.76 as of the third quarter.

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