By Holly Dutton
A portfolio of eight hotels located along the East Coast are being brought to market by Newmark Grubb Knight Frank (NGKF) Hotels.
The properties, all owned by affiliates of WNW Hospitality, are located in New York, New Jersey, Massachusetts and Connecticut and are on the market as a portfolio or can be sold individually, according to Jonathan Falik, senior managing director and head of Hotel Investment Sales, who is leading the marketing effort.
“The properties are free of management encumbrances, are exceptionally well located, and almost all offer terrific upside potential for repositioning and management improvement,” added Falik.
“In some cases, the buyer would be able to add a retail component, and various other upgrades.
“We rarely see such a strong portfolio on the market. What strikes us immediately is the versatility of each of these properties: the way they could each be tailored to the new owner’s vision.”
The New York City area hotels include the Best Western Plus Seaport Inn, located in the South Street Seaport, which has 72 rooms and suites and 1,400 s/f of vacant retail/restaurant space, and Executive Inn, located in Woodbury, Long Island, which has the potential for redevelopment into senior housing, retail, or other use. Connecticut hotels include the Holiday Inn Express & Suites in Hartford, the Best Western Plus Black Rock in Fairfield, the Holiday Inn North Haven in North Haven, and the Heritage Hotel in Southbury.
The other two hotels are Best Western Plus Roundhouse Suites in Boston and the Best Western Fort Lee in Fort Lee, New Jersey.
The Manhattan hotel market has show solid growth across the board since rebounding for the recession in 2011. Occupancy levels at their highest rate since 2008, according to a CBRE 3Q 2012 market report, which also showed a strong growth in demand and ADR, (average daily rate) as well as city-wide increases year-over-year in RevPAR (revenue per available room) in 2012.
Manhattan hotels experienced a record number of visitors in 2010 and 2011, and tourism is expected to keep growing through 2013 and beyond.
Institutional investors including real estate investment trusts (REITs), in particular, have stepped up lodging acquisitions. REIT shares have traded at implied capitalization rates of 6 percent to 6.1 percent for the past 18 months.
“We’re seeing more opportunistic buyers, both large and small, step into the [hospitality] sector,” Falik said.
“But by and large, the buyers are returning investors that have owned lodging assets in previous cycles, whether they’re buying large institutional quality assets or they’re acquiring limited-service or smaller properties.”
Growing transaction volume is a good sign overall, he said, but equally encouraging is the resiliency of structured financing. Once-vilified vehicles such as commercial mortgage-backed securities have slowly come back into favor, providing investors with annual yields in the double digits for the riskier investments, Falik said.
“If it’s an out-of-the-box asset, it might be an 11 percent debt yield,” he said. “And if it’s in a very desirable market, it might be a 9 percent yield.”
Many investors are taking advantage of floating interest rates by using bridge loans to acquire assets, leaving the door open for longer-term financing, according to Falik.
At least through the end of 2013, construction is also unlikely to affect the supply demand balance that is helping to fuel price and valuation growth in markets across the country.