The Market Correction Has Already Started With Hotels
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Real Capital Analytics’ Q2 numbers for hotel transactions would be cause for alarm, on the surface. There was $6.5B sold—a 50% drop over the same period last year. But that’s an improvement over Q1’s 60% year-over-year decrease. And prices are starting to rebound after a late 2015 decline that carried over into the new year.
But these figures are skewed because 2015 was the year of the hotel megadeal. Portfolio sales accounted for 42% of all transaction activity in the first half of 2015, compared to only 13% in the first six months of 2016. Waterton hospitality CIO Nir Liebling (pictured) and AVP Joe Langley say three factors are behind the compressed hotel market.
First, Nir says it’s no secret public REITs have been on the transaction sideline for quite some time now, recovering from a horrid start to 2016. This has resulted in reduced competition for assets in prime markets. Second, there are supply concerns in some major markets; NYC, for example. Third, investors—mainly private entrepreneurs—are looking at the current stage of the recovery cycle, trying to determine the amount of remaining growth to be realized prior to the next downturn.