Lodging market offers opportunities for developers, buyers and sellers - by Shane Vahey

New England Hotel Realty (NEHR), powered by the global market intelligence of Lodging Econometrics (LE), recently reported that the United States hotel construction pipeline totaled 5,032 projects/602,034 rooms, rising 13% Year-Over-Year (YOY). This was the 21st consecutive quarter of pipeline growth, yet still a distant 851 projects/183,513 rooms from the last lodging real estate cycle peak reached in Q2 2008.

These metrics tell a compelling story of continued upward momentum for the U.S. hotel construction pipeline and the lodging industry overall. Developer sentiment remains positive, interest rates continue to be historically low, and development financing is readily available for select brands and continues to be sourced at rates and terms attractive to investors. We expect to see this trend continue for the foreseeable future.

New England Construction Pipeline
New England’s hotel construction pipeline currently consists of 153 projects/20,715 rooms (see Chart 1). The region accounts for approximately 3% of all projects in the U.S. pipeline. NEHR forecasts that 30 hotels with 3,041 total rooms will open in New England in 2017, and 42 hotels with 5,485 new rooms will open in 2018. New England room supply growth rates are forecasted to be 1.5% and 2.6% for those years, respectively.

Massachusetts will see the majority of the new hotel openings projected in New England for 2017. The Homewood Suites by Hilton in Chelsea with 152 rooms has recently opened, and another 18 hotels with 1,846 rooms are expected to open by year-end. 

Hotel owners with assets in New England should be looking closely at their portfolios to determine how their assets could be affected by the robust construction pipeline and further new supply announcements in their markets. NEHR has recently seen a spike in the number of hotel owners who have requested updated valuations from us for their assets in anticipation of selling. Investor interest for New England hotel assets remains high due to strong operating performance, the low cost of capital, and diverse economic demand generators. Select-service hotels in the upscale and upper midscale chain scales continue to be the favored assets of both investors and lenders due to their wide consumer appeal, strong reservation systems, reward programs and relative operational simplicity. 

New England Lodging Transaction Values
In the first quarter, there were 6 lodging transactions in New England with a price reported into the public domain (see Chart 2). Four of these properties were in Massachusetts, and two were in Rhode Island. The Average Selling Price Per Room (ASPR) of those assets was $170,401, above the national average of $149,106. We anticipate that the transaction market will get stronger as the year progresses. 

NEHR recently brokered the sale of a 90-room Comfort Inn in a prime New England business and leisure market. That offering generated very strong demand from our extensive database of hotel investors, and ultimately sold above appraised value and closed quickly. This transaction is a great example of the opportunistic climate in the marketplace right now and just how strong buyer demand for New England hotel assets is right now. 

Currently, there are not enough hotel assets available for purchase in New England to satisfy investor demand. Buyers are anxious to acquire assets in New England due to the low cost of capital, high barriers to entry, and the diverse array of demand generators in the region. Sellers have the opportunity to be selective while taking advantage of heightened investor interest experienced at cycle peaks. There truly has not been a better time to be both a buyer and a seller of New England hotel assets than right now!

If you are interested in acquiring or disposing of hotel assets, or if you would like to be notified when an asset meeting your acquisition specifications becomes available for sale, please register on our website: newenglandhotelrealty.com/register. 

Powered by an exclusive arrangement with LE, NEHR is the leading full-service hotel real estate advisory and brokerage firm in the Northeast providing comprehensive disposition, acquisition and consulting services for 40 years. Their brokerage team consists of the largest group of investment advisors, hotel brokers, market researchers, analysts and forecasters of industry trends throughout the country. They have advised an extensive list of buyers and sellers on; disposition and acquisition of lodging assets, property evaluations, asset management services, and forecasting of future supply/demand trends in all markets.

Shane Vahey is director of real estate business development at New England Hotel Realty.

With over 15 years of experience effectively representing sellers throughout the Northeast, including NYC, Vahey is a trusted real estate advisor to many investment groups as well as individual investors. He is active throughout the region and has brokered deals and secured financing for many assets throughout New England and New York City. 

Many ownership groups regularly consult with Vahey on disposition strategies and, ultimately, entrust him to confidentially offer their hotel assets to his extensive database of hotel investors. Vahey has earned the business of many buyers and sellers due to his intimate knowledge of the hotel marketplace and by getting transactions completed quickly and confidentially.