October 11, 2002

Positive Growth  in the Second Quarter

Written By:  Antonia G. Viens

The Data Collection and Research Department of HVS International recently completed a study of major hotel transactions that occurred between the first and second quarters of 2002. In the study a major transaction is defined as a hotel that sells for $10 million or greater. Our findings indicated a positive trend both in increased transactions (albeit a modest increase) and the aggregate dollars transferred. Barring any unforeseen catastrophes, hotel sales activity is rising from their recent recessionary nadir and showing signs of gaining a foothold toward stabilization.

While the 15 major transactions occurring in the second quarter were only two more than the 13 that occurred in the first quarter, the dollars transferred increased by more than 184%; major hotel sales volume increased from $282 million in the first quarter to $802 million in the second quarter. This sizeable percentage change in aggregate dollars transferred was due in large part by several larger hotels selling in the second quarter than in the first quarter.

The largest sale occurring in the first quarter was the purchase of the 353-room Omni Jacksonville Hotel in Jacksonville, Florida for $52.4 million, or $149,000 per room. The remaining 12 sales had sale prices between $10 and $50 million. In the second quarter, the largest sale was that of the 1,147-room Boston Marriott Copley Place in Boston, Massachusetts for $214 million, or $187,000 per room. In addition to the Boston Marriott selling, four other sales occurred ranging in sale price between $25 and $200 million.

While the transaction volume is considerably lower than in previous years, the limited number of sales is not necessarily a bad sign. Buyers and sellers are apparently willing to consummate transactions, though they are not always able to agree on price. Sellers are not generally desperate to sell; actually a positive sign indicating that hotels operating with reduced average daily room rates and reduced occupancy are still meeting expenses and debt service, thus allowing owners to wait until prices increase. To that end, there appears to be mounting pent-up demand for major hotel transactions to occur by the year�s end.

In order to provide some perspective regarding the second quarter�s major transactions, a brief look back at the last year and a half is in order. The national economic slowdown commenced in earnest in early 2001, causing the hotel industry to suffer reduced occupancies and average room rates. The tragic events of September 11^th, 2001 further exacerbated this downturn. At the end of 2001, a total of 105 major transactions had occurred, a sizeable decrease in annual sales relative to each of the previous years since 1995. The reduced sales volume in 2001 was predominately the result of the severely diminished number of major transactions during the last four months of the year. In the last four months of 1999, 46 sales occurred, while 39 sales occurred during the same period in 2000. In 2001, 24 sales occurred during this period, as many buyers and sellers opted for a �wait-and-see� stance in the final months of the year.

This reduction in major hotel transactions carried over into the beginning of 2002. January and February of 2002 witnessed a total of 11 major hotel transactions. During these two months in 1999, 22 sales occurred, 18 sales occurred in 2000, and 24 sales were recorded in 2001. Sales remained slow through the first half of 2002. Even in June, a traditionally busy month for hotel transactions, only nine sales occurred. In June 1999, 11 major transactions occurred; in June 2000, 24 transactions occurred; and in June 2002, 23 sales occurred. The following table shows the number of sales occurring during the first six months of 2002, compared with the numbers occurring during the first six months of 1999, 2000, and 2001.

In the first half of 2002, major hotel transactions were off roundly 60%, based on the average number of sales occurring in 1999, 2000, and 2001. While this may appear to be discouraging news, these numbers are adhering to a typical real estate cycle, wherein decline is followed by stability and then growth.  This is the essence of whatever good news can be extracted from the data. Given the modest increases being recorded in terms of transaction volume, it is reasonable to expect that stabilization may be underway by the end of 2002. The increases in transaction volume and total dollars transacted from the first to the second quarter allude to this nascent recovery. The following table compares sales data from the first and second quarters of 2002.

For more detailed information regarding major transactions, please contact Antonia G. Viens, Director of Data Collection & Research at (860) 432-2102. To order a copy of the Summer 2002 Hotel Transactions Quarterly, where the major transactions are listed and discussed, contact Joan Raffetto at (516) 248-8828. As an introductory offer to the HVS Quarterly publications, a $250 purchase of the 2001 Major Hotel Transactions will also include the quarterlies for 2002.

Hotel sale information provided in this article is predominately derived from HVS International�s Lodging DataBank, where HVS International maintains information on hotel sales and hotel operating histories spanning more than three decades. With this significant volume of relevant data, the HVS Data Collection & Research Department is well equipped to provide information and support to the hotel industry

Efforts have been made to verify information that has been presented, but its accuracy and completeness cannot be guaranteed. Opinions, estimates and projections constitute our judgment and are subject to change without notice.

Antonia G. Viens
Director of Data Collection & Research
HVS International
71 John Olds Drive, Suite 104
Manchester, CT 06040
Direct Line: 860.432.2102
Fax: 860.432.2021
 

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About the Author:


Antonia G. Viens,

Ms. Viens is an instructor for the Appraisal Institute and has taught at New York University. She has served on a number of panels and conferences and is highly regarded as an informative and entertaining speaker.