DEALTALK-U.S. hotel sales start up,frustrations remain

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* Hotel deals could hit $6 billion in 2010- Baird

* ‘Awful lot of frustration out there’- advisor

* Public lodging REITs better positioned to buy hotels

By Deepa Seetharaman

NEW YORK, June 7 (BestGrowthStock) – Hotel transaction volume in
the United States looks set to surpass the prevailing forecast
of $3.5 billion this year, as aspiring investors grouse about
stiff competition and higher-than-expected prices for choice

Through May, hotel investments amounted to about $2.2
billion, much of which has been the province of publicy-traded
lodging real estate investment trusts (REIT), according to a
Baird Research note published in late May.

By year’s end, the value of hotel transactions in the
United States will top the earlier $3.5 billion estimate from
hospitality firm Jones Lang LaSalle Hotels, analysts said.

At the current pace, sales could hit at least $5.5 billion
for 2010, if not $6 billion, a feat that would put deal volume
on par with 2003 levels, Baird said. This figure includes
outright hotel sales as well as purchases of debt.

“We’ve seen a very good pick-up in the deal flows in the
last couple of months,” said Jacques Cohen, principal of Euro
Capital Properties, which bought the famed Watergate Hotel last
month. [ID:nN27111650]

He added: “Prices have gone up quite a lot as well.”

Hotel deal volume hit a 10-year low in 2009 as banks held
back their lending and hotel revenue plummeted. At that time,
experts had predicted a wave of distressed hotel sales in 2010
as these properties faced looming debt payments.

But this has not happened so far.


Banks have shown a willingness to help borrowers
restructure their loans. Now, as business travel picks up and
room rates rise, the outlook for the lodging sector has become
brighter, forcing potential buyers to pony up more money than
they anticipated.

For example, some investors pinned the value of the Raffles
L’Ermitage-Beverly Hills hotel at $30 million, said Alan Reay,
president of consulting firm Atlas Hospitality.

The five-star property near Rodeo Drive went for about $45
million in March, according to the Baird note.

“There’s still a lot of money chasing relatively few
distressed deals,” Deutsche Bank analyst Chris Woronka said.

Of the more than 40 hotel sales highlighted by Baird, just
13 were “stress induced.” These distressed sales accounted for
$1 billion, or roughly half of deal activity this year.

“There’s an awful lot of frustration out there,” said
Robert LaForgia, principal of advisory firm Apertor Hospitality
and the former chief financial officer of Blackstone Group-
owned (BX.N: ) Hilton Worldwide, previously called Hilton Hotels

Public REITs have been able to snatch up properties more
readily than their private counterparts, helped by their access
to the public markets.

Seventy-one percent of hotels sold this year have been
bought by public REITs, Baird said. Currently, public REITs own
just 4 percent of U.S. hotels.

DiamondRock Hospitality (DRH.N: ) and Hersha Hospitality
(HT.N: ) have been among the REITs that have recently purchased
hotels or hotel debt.

DiamondRock bought the $69 million senior mortgage loan
secured by the 443-room Allerton Hotel in Chicago last month.
The property was declared a Chicago landmark in

These transactions are indicative of the narrowing chasm
between what buyers and sellers believe is a fair price. But
experts are quick to point out it is the buyers that have had
to bend to the will of sellers.

“I haven’t seen this plethora of hotel deals that everyone
has expected to see in the market,” LaForgia said.

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(Reporting by Deepa Seetharaman; additional reporting by Abhishek Takle in
Bangalore; Editing by Valerie Lee)

DEALTALK-U.S. hotel sales start up,frustrations remain