Overview of Sales Transactions in Manhattan

The table on the following pages sets forth an overview of Manhattan hotel sales from 1992 through April of 2004.

As a result of the previous recession in the early 1990s, limited transactions occurred in 1992 and 1993, following by moderate increases in sales activity in 1994 and 1995. The hotel industry in Manhattan experienced significant sales transaction activity from 1996 through the first half of 2000, due to the upswing in hotel operating profits as well as the increased availability of debt financing. Hotel REITs and operating companies were in a strong acquisition mode during this period, which, coupled with the relatively low cost of debt and equity, helped to enhance hotel values. The downturn in lodging REIT and C-Corp. stock prices, as well as the uncertainty of the capital markets, contributed to a slowdown in sales activity as of the second half of 2000.

Following the events of September 11, 2001, hotel transaction activity further declined due to the uncertainty regarding hotel operating performance and stricter underwriting by lenders. Well-capitalized owners were generally holding onto their assets until market conditions normalized. Those owners facing debt-service shortfalls modified loan payment terms with their lenders or brought in new equity to the investment. Few owners have been forced to sell their assets.

Since the end of 2001, numerous buyers have raised capital to purchase hotels at levels below replacement cost. Declining hotel performance in 2002, followed by the war in Iraq and the SARS epidemic in the first half of 2003, caused many transactions to stall due to a gap between seller and buyer expectations.

As of the last quarter of 2003, hotel investors now perceive that the hotel industry in Manhattan has turned around, and occupancy and rates are expected to rebound significantly over the next few years; buyers are starting to meet seller expectations. We note that all five sales that occurred in 2003 took place during the second half of the year, as the Manhattan lodging market was starting to turn around.

Two hotels sold in the first four months of 2004 and several hotels are anticipated to change ownership in 2004 and beyond. We expect significant sales transaction activity in the next few years, similar to the activity that followed the previous recession of the early 1990s.

We note that from 1992 through April 2004, the highest per-room price was achieved by the Four Seasons, at roundly $743,000, in February of 1999.

Five transactions were identified in 2003; the following is a synopsis of each of these sales.

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