Sales Volume Increased by Almost 200% Since 2020
By Jan Freitag CoStar Analytics October 25, 2021 | 10:04 AM
After a short lull in hotel investment activity, the preliminary total sales volume for the third quarter reached $13.4 billion, almost matching the highest third-quarter sales volume ever, $13.9 billion in 2016. Investor sentiment is favoring the sector again after a pandemic-induced drop in activity to only $918 million in the second quarter of 2020.
The investment activity comes on the heels of the record-setting second quarter, when total volume topped $15.5 billion. Around $6 billion of this was attributed to the acquisition of Extended Stay America Blackstone Real Estate Partners and Starwood Capital Group.
Investors are attracted to an industry on the upswing. Hotel operating performance metrics according to STR, CoStar’s hotel analytics firm, have increased sharply year over year. National occupancy for the first nine months stood at 57.6%, an increase of just under 30%, and room rates increased around 15% in that same time frame. Results have been buoyed by strong leisure demand from American consumers who are eager to leave their homes and spend their savings on trips and experiences. High-end resort hotels have benefited disproportionately, and that has increased investor interest in this asset class. Transactions involving the Montage Healdsburg in California, the Four Seasons hotel at Disney World and the Ventana Big Sur are examples of buyers paying prices and implied capitalization rates that match results from 2019.
Even though the third-quarter volume seems substantial, it is worth pointing out that other real estate classes showed much higher quarterly sales. Investors bought over $57 billion worth of multifamily buildings, $38 billion worth of industrial real estate and over $33 billion worth of office space. Even retail sales were almost double the hospitality sales at around $26 billion. The easy availability of debt and equity capital continues to fuel the transaction markets.
One active participant in the hotel arena last quarter was MGM Resorts International. To secure its long-term presence on the Las Vegas Strip, while shedding assets and focusing on casino operations, it participated in a sale-leaseback transaction for the Aria and Vdara properties for around $3.9 billion. Counterpart to the transaction was Blackstone.
Blackstone, furthermore, announced last week that it entered into an agreement to sell the Cosmopolitan Hotel and Casino, also on the Las Vegas Strip, to three separate entities, one of them a Blackstone real estate investment trust, while MGM will take over the operations and pay lease payments to the new owners. The transaction is expected to close in early 2022.