The PiPeline : North AmericA
North American development , performance and transaction activity have aligned to generate further success for investors .
contributed by JEri CLauSing
Ask hotel industry in 2014 , and
any insider about the state of the North American
they will likely point to the recent sale of New York ’ s iconic Waldorf Astoria for US $ 1.95 billion . While the record price underscores the uniqueness of the New York market , industry experts say it also stands as a symbol to the industry ’ s health and the optimism for the future with development , pricing and transactions all on the rise .
New data from Lodging Econometrics ( LE ) shows the North American pipeline continued its double-digit expansion in 2014 , and many expect the infusion of new capital — including Asian investment — to further drive development and a flurry of transactions .
“ It ’ s a great time to be in the hotel business ,” says Lee Pillsbury , one of the founders of investment group Thayer Lodging , Brookfield Hotel Properties , Annapolis , Maryland . “ The fundamentals remain strong . Occupancy growth is continuing . Pricing power is increasing . … Investor focus has begun to shift from primary to secondary markets , and I would expect that to continue next year .”
According to LE , the U . S . pipeline stands at 3,299 projects , or 420,608 rooms , which is a year-over-year increase of 17 % by projects and rooms and accounts for 36 % of the global pipeline . Canada has 188 projects and 22,962 rooms in its pipeline , an increase of 10 % by projects and 17 % by rooms .
The hottest markets , industry experts say , continue to be the big cities like New
York , Miami and Los Angeles , along with secondary markets like Seattle , Austin , Texas , and Nashville , Tennessee . “ Austin has just been exploding ,” Pillsbury says . “ It may not be appropriate to refer to Austin as secondary anymore . But even the real secondary markets are seeing some significant growth .”
Spotlight on select service And while the Waldorf sale by Hilton Worldwide to a Chinese insurance group highlights the pent-up demand for luxury hotels in primary markets , hotel developers , owners and investors say the real growth in the near future will continue to focus on select-service properties in urban and some secondary markets . “ I think we are going to see an increase in luxury , full-service and resort , but it will still be somewhat moderate in 2015 ,” says Richard Warnick , president of hospitality and asset-management firm Warnick + Co ., Scottsdale , Arizona .
The premium select-service brands , Warnick says , are the ones people want to own . “ There are lot of institutional buyers out there ,” he says . “ They ’ re like vacuum cleaners with these premium select-service brands . They want to own as many as they can .”
Steve Haggerty , global head of capital strategy , franchising and select-service for Chicago-based Hyatt Hotels Corp ., says even the larger REITs that in the past have shied away from the sector are looking to add select-service properties to their portfolios . “ We are seeing urban select attract a lot of capital ,” he says .
With group demand still lagging , Haggerty and others say they don ’ t see a return any time soon to interest in large full-service properties with some 40,000 square feet ( 3,716 square meters ) of meeting space like those that were built in the 1980s . “ They ’ re simply not efficient enough ,” Haggerty adds . “ They ’ re not profitable enough , and I think customers are demanding the kind of experience that doesn ’ t require that kind of build-out .”
Tom Corcoran , chairman of FelCor Lodging Trust , Irving , Texas , says there may be some opportunity in rehabbing traditional full-service hotels , “ but I ’ m not sure that model works as well as it used to work .”
That said , Dallas-based Omni Hotels & Resorts , for one , has added 10 hotels , including six resorts , and looks to continue building bigger full-service hotels in partnerships with convention centers . “ We went through a pretty large growth spurt last year ,” says Omni President Mike Deitemeyer . “ We announced a deal in Louisville , which is a new-build public-private partnership 600-room hotel . We announced a deal in Tempe ( Arizona ), which is a university project right off the campus . … But it ’ s still a little tough to get deals done without local subsidies .”
Deitemeyer says the company also bought the King Edward Hotel in Toronto and is currently eyeing several new cities that are looking for hotel partners for their convention centers , including Salt Lake City , New Orleans and Boston .
www . hotelsmag . com December 2014 HOTELS 41