Hotels are attracting a wide variety of investor capital. According to a new report from Jones Lang LaSalle Hotels, the advent of reliable data on hotel operating performance, supply pipeline development, demand trends and operating margin levels has left the U.S. hotel market more transparent than ever. As a result, investors have a better understanding of the cyclical nature of the industry, including the economic effect on the length and depth of these cycles, as well as the predictability of hotel performance. With this data, the movement of capital into and out of the industry is increasingly efficient and exhibits a more central role in shaping the ownership structure of the industry.
The key trend which separates management and hotel ownership is likely to persist. Examples include Hilton’s recent announcement of its intent to sell the majority of the international assets, acquired in the Hilton International deal last year. Hilton intends to reduce their owned mix to 30% from the current 43%, in turn boosting fee contribution business up to 45% from 35%. Several other public companies are pursuing similar strategies. Hilton’s announcement comes on the heels of other hotel companies shedding real estate, such as Starwood and InterContinental.
“The climate is shaped by an abundance of yield-driven equity, inexpensive debt, and a lackluster stock market. As such, private equity firms have grown as a dominant and influential player in hotel ownership – and the amount of capital which they have to place is now expanding the REIT market,” says Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels.
“Demand has been fuelled, at least in part, by an expectation that hotels will experience several more years of robust recovery and will outperform other commercial property sectors,” says Kristina Paired, senior vice president of marketing and research for Jones Lang LaSalle Hotels. “Further, with the prospect of rising inflation levels, investors may look to hotel ownership as a hedge against inflation.”