Distressed assets are first investment choice for 62% of survey respondents -

Hotel investors affirm that the US select service hotel sector is in recovery mode across the board, which will continue to lead to greater confidence and a more resounding flow of capital to hotel real estate.
 
According to Jones Lang LaSalle Hotels' bi-annual U.S. Select Service Hotel Investor Survey, 51 percent of respondents have an overlying ‘buy' strategy—marking the highest level since the highest level since the survey's inception as investors vie for opportunities to acquire select service properties below replacement cost. High-quality select service assets located in urban locations are being targeted by the widest number of investors including REITs. This is often driving up pricing.
 
In terms of acquisitions, distressed assets are investors' first target. "Sixty-two percent of respondents are targeting distressed assets, indicative of their expectation that banks and special servicers will market an increased number of REO hotel assets in the coming months. Distressed select service properties are generally sought by all-cash buyers and many of the assets require capital injections and present repositioning opportunities. Another 33 percent of survey respondents are targeting the purchase of stabilized assets over the next six months," said Mark Fair, managing director of Jones Lang LaSalle Hotels' select service division.
 
Maturing loans are expected to remain a prevalent issue over the next two to three years. Two-fifths of survey respondents will face loan maturities over the next year. Just over half of respondents will address these maturities by refinancing the debt. One third of investors are requesting an extension or loan modification from their lenders; the remaining 13 percent of investors will address the maturing loans through additional equity injection.
 
"While many banks and special servicers had adopted the strategy of extending the majority of hotel loans as they reached maturity or were in some form of default, future decisions may increasingly be made to sell the notes based on a lack of debt available to refinance the loans. Large-scale special servicer and bank-driven note sales for select service assets will continue to feature as a significant trend in 2011," said Al Calhoun, managing director of Jones Lang LaSalle Hotels' select service division.
 
Compared to the previous year, 71 percent of investors expect 2011 RevPAR to increase three percent or more. This is driven by the fact that investors have witnessed a return to demand growth in virtually all markets; the more optimistic outlook is resulting in increasingly aggressive operating budgets.
 
Jones Lang LaSalle Hotels' proprietary survey was completed by nearly 250 of the nation's leading select service hotel owners and investors.