Kevin Baumgartner Director
CLS, GRS | Corteq
(305) 547-9879
[email protected]
The sale-leaseback sector of commercial real estate is mostly associated with retail pad sites, such as a drug, convenience store or quick-service restaurant. It can also be associated with sectors like office and industrial, but now another one is getting some attention.
Hotels are on now on the sale-leaseback menu, according to an interesting GlobeSt.com article. Reportedly sale-leasebacks for hospitality assets are a common occurrence in Europe but becoming more recurrent in the United States.
The example that GlobeSt. points to is Germany-based Deka Immobilien purchasing the Hyatt Centric hotel in downtown Chicago for $110 million. The original developer, Murphy Development Group, will continue to operate the facility.
So how common are hospitality sale-leasebacks?
Another one happened to take place in Chicago last year when Union Investment Real Estate, also based in Germany, acquired the LondonHouse hotel for $315 million, even though Oxford Capital Group continues to operate the asset.
Unless there is some doubtful Germany-Chicago hotel-investment strategy, it shows an upcoming trend in commercial real estate, based on the dollar figures paid for these buildings.
In an interview with Hotel Management, a DLA Piper executive says that this Europe-based real estate practice will likely be seen more in the United States, as overseas investors look to place more money into domestic hospitality assets and have an on-the-ground team run them.
For example, if a hotel buyer based in London wants to acquire properties in Spain, it only makes sense to have local operators.
And right now it makes sense to invest in United States hotels.
CBRE points out that the hotel industry is on a hot streak. The firm sees occupancy growth on the horizon for the eighth consecutive year for domestic hotel assets. Supply is growing, but for the benefit of investors in this sector of commercial real estate, demand is currently stronger.
As far as CBRE is concerned, also, RevPAR (revenue per occupied room), the strongest metric for hotel performance, is on track to increase three percent year over year during the course of 2017, which means fundamentals are performing very well in this sector of commercial real estate.
So, it’s not a surprise that international, or domestic, investors would want to have a sale-leaseback situation involving hotels and their successful financial results.
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