With construction activity firing on all cylinders in all the major markets in the U.S., concentrated mainly in the office, multifamily and industrial sectors, the national lodging market is following suit.
Hotel development is on the up, spurred on by the delivery of new office, residential, entertainment and sports projects in high-density markets.
More and more investors are choosing to acquire high-quality hotels located in desirable urban or resort markets such as Miami, Los Angeles, or Chicago, while some are also expanding their focus outside the usual destinations and betting on secondary or up-and-coming markets where development is booming.
A New York-based investor recently paid a hefty price for a Holiday Inn asset located near downtown San Jose in California, an investment likely encouraged by Google’s announcement that it would set up a major transit-oriented corporate village in the area.
All these new projects and corporate expansions, coupled with population growth, are having a major impact on the U.S. hotel sector, boosting investor interest and fueling demand for accommodation options.
In the last couple of years, public REITs have become major players on the market, alongside private equity firms and offshore buyers, betting big on high-quality, well-located hotel assets.
Such heightened attention from companies that are usually more focused on office or mixed-use gems is a clear sign that the hotel industry is bustling with activity.
According to a report from Commercial Cafe, California remains a top destination for hotel buyers, with seven out of the top 20 largest deals of 2017 closed in The Golden State.
Florida, Hawaii and New York each made the list three times, while the top sale of the year took place in Las Vegas.
The priciest hotel trade of the year closed in August, when Steve Witkoff partnered with New Valley LLC to acquire the Fontainebleau Las Vegas for $600 million — four times more than what previous owner Carl Icahn paid for the asset in 2010.
Construction on the $2.9 billion, 68-story hotel located at 2755 South Las Vegas Blvd. came to a halt around 2009, after the developers filed for bankruptcy as the U.S. real estate market was hit by the financial crisis.
Originally intended to be a sister property to the South Beach Fontainebleau in Miami, the Carlos Zapata Studio-designed hotel and casino is still unfinished, and the hope is that the new owners will finally bring the project to a close.
The second-largest hotel transaction of 2017 closed in June, when the Pacific Beach Hotel Waikiki in Honolulu was snagged by a Germany-based investor. Commerz Real, an affiliate of Commerzbank, marked its first hotel buy in the U.S. with the $515 million leasehold purchase of the 839-key property located at 2490 Kalakaua Ave.
According to Pacific Business News, previous owner Highgate Holdings will continue to manage the asset under a 20-year lease with two extension options, while the Queen Lilluokalani Trust owns the land beneath the hotel.
The Pacific Beach Hotel Waikiki has been undergoing a $115 million redevelopment, and is set to reopen as the Alohilani Resort Waikiki Beach this month.
The 286-key hotel located at 8490 West Sunset Blvd. in West Hollywood, Calif., has been in the news quite a lot in recent months. In July, Starwood Capital paid $280 million to acquire the yet-unopened project from CIM Group. The hotel was supposed to open as The James West Hollywood sometime in May, yet that plan ultimately fell through. Prior to the property being sold, The James backed out of the project, further delaying the hotel’s opening date.
Currently the hotel is going by the name The Jeremy West Hollywood, but soon enough that name will change yet again, as the project will become part of the “1” brand, launched by Starwood’s Barry Sternlicht in 2015. The two-tower, 10-story hotel is part of a larger mixed-use project dubbed Sunset La Cienega, set to include residential, retail and hotel space right on the bustling Sunset Boulevard.