Timing a Hotel Sale to the Larger 'Season'

Timing a Hotel Sale to the Larger 'Season'

May 6, 2016

 

In many markets, summer is the peak season of the year and hotel investors like to time purchases to take advantage of this strong revenue season. Yet, it may be far more important to time a hotel transaction to the larger ‘season’, or cycle, of the hotel industry.

 

By some accounts, the hotel industry seems to be moving into the ‘Autumn’ season, but for the mid-sized single-asset sale, the data shows we are still in peak ‘Summer’ season.

 

Hotel values have been recovering since the 2008 market crash and 2015 saw a high level of transaction volumes. However, much of the volume of hotel sales in 2015 were large portfolio and entity-level transactions. This is part of a larger trend of consolidation in the industry. Single-asset transactions are still trending up. Transactions of single-asset, under $25 million, hotel sales were up 24% in Q1 2016 compared to last year, according to Real Capital Analytics Q1 Trend Report.

 

In the Linked-In post by Monica Wolfson of Real Capital Analytics, she says “To the extent there was a bright spot in transaction activity in the hotel sector in Q1’16, it was in the smaller assets and markets”. Click Here to Read the Original Post. 

 

RevPAR continues to trend upward, but RevPAR growth has slowed, according to Smith Travel Research March 2016 Monthly Numbers, Click Here for OriginalArticle. Financing, principally bank and SBA funds (see my previous blog post HOTEL CMBS VS. BANK AND SBA LENDING), continue to be readily available and still at historically low rates, particularly for deals under $20,000,000.  So we see financing and transaction volume of single assets under $25 million staying strong through 2016. 

 

The immediate sale value of a hotel can go down somewhat if buyers lose the timing advantage of the peak season, and buyers may want to pay less if closing in October rather than April in Northern markets. This is true of the hotel industry larger ‘season’, as well.  Those of us who have weathered multiple cycles of the hotel industry have seen substantial value waves rise and fall.  The question to ask yourself, as a hotel owner, is “Do I want to hold onto this hotel through the next market ‘down season’, or make my exit now?”

 

If your answer is “No, I don't want to hold through the next down cycle”, then the TIME IS NOW to sell your hotel and maximize your investment return while buyer interest and financing is still strong.  How much longer that will continue we don't know.  Contact MBA Hotel Brokers for a hotel valuation by one of our experienced hotel brokers.

 

Do you agree with this outlook on the hotel market? Let me know your thoughts in the comments below. If you enjoyed this post, please share it.

 

Till next time;

 

Charlie Fritsch

 

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MBA Capital Funding Inc. is a commercial mortgage and financing services firm, specializing in arranging debt and debt structures.