Arthur Adler
In its just-released Hotel Investment Outlook report, JLL describes 2009 as "the year of a new reality".
"As debt markets remained illiquid and fundamentals continued to deteriorate, many investors retreated to the sidelines."
Hotel transaction volumes in the Americas sank 78 percent, totaling $2.1 billion - the lowest level of the decade.
"The Americas region will face another challenging year for hotel transactions in 2010 as the market remains hampered by limited debt liquidity," the report states.
"The increase in transaction volume will be driven by the bottoming-out of RevPAR, the significant amount of equity entering the market and increased pressure on some owners and lenders to sell or recapitalize assets."
These factors will result in the narrowing of the bid-ask spread and an increase in seller financed deals, JLL predicts.
"This increase will mark the first rise in two years, but is still approximately 40 percent below the annual volumes recorded from 2000 to 2003," said Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels.
"To the extent that several portfolio transactions are completed, transaction volume will exceed the $3.5 billion level."
During 2010, considerable differences in the operating and investment environments of hotel markets across the Americas region will emerge as the market continues to reset itself, Adler says.
He predicts:
- "In the United States, investors will jump back in the market once hotel fundamentals are near the bottom and will be attracted by the significant discount to both replacement cost and to peak values.
- "Investors recognize that "the recovery will be robust due to the operating costs that have been taken out of the business, much of which is sustainable, and the fact that the liquidity crunch will choke-off new supply for the foreseeable future.
- "In 2010, there will be more pressure on banks--having already extended loans for six to 12 months--and there will likely be an increase in foreclosure and deed-in-lieu activity, but a tidal wave of distressed buying opportunities is not expected."
South America remains largely unscathed by the debt crisis and is expected to lead the way in 2010 in terms of demand fundamentals.
"Brazil, Latin America's largest economy, lifted itself out of recession during the second quarter of 2009 and represents the continent's most attractive hotel investment market," says Clay Dickinson, an executive vice president for Jones Lang LaSalle Hotels.
Colombia, Peru and Chile are favored next.
Colombia's operational environment presents some investment challenges as the result of significant increases in lodging supply and the mixed ramifications of this year's presidential election.
"Nonetheless, economic growth has been robust and transparency in the real estate sector has improved greatly," the report states.
Peru has shown resilience to the economic downturn and the development of branded limited service hotels represents a growing investment opportunity in the country.
Chile has also experienced pronounced increases in lodging supply, but a stable macroeconomic environment and an improving economy is expected to bolster the country's position as a bright spot for hotel investment over the next five years.
'While new lending capacity will remain limited, 2010 will mark the early stages of a new lodging cycle; a period when the investment community will start to transition from the year of realization to the year of increasing opportunities," says Adler.
"Savvy buyers who are in a strong cash position and able to be aggressive will be able to benefit from the select buying opportunities that emerge, and the early movers stand to reap the greatest rewards."
In 2008, Jones Lang LaSalle Hotels provided sale, purchase and financing advice on over $3.7 billion worth of transactions globally relating to more than 120 assets.
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