After years in the dumps following the Sept. 11, 2001, attacks, the hotel sector is all the rage.
These days, real estate money managers are again investing in both large resorts and casinos and smaller residential hotels as the market rebounds. At the same time, hotels are more tempting to institutional investors in their search for returns and diversification, consultants and real estate advisers say.
Investors are becoming more comfortable with hotels as return data and other information have become more readily available and as returns rise, said Troy Jones, senior manager with the transaction real estate group at Ernst & Young LLP, New York.
Hotel sales worldwide for the first half of this year were $41 billion, with $21.8 billion in the United States alone. Prospective buyers in the U.S. outnumbered potential sellers at a ratio of 5-2, noted Kristina Paider, senior vice president of marketing and research for Jones Lang LaSalle Hotels, Chicago.
The frenzied transaction activity is expected to continue for at least the next 12 to 18 months, according to a Jones Lange LaSalle Hotels study on hotel investments released in August.
This is despite sentiments that global returns in the sector will slow. Investors' expected internal rate of return from hotel investments dropped to 16.9% in June from the 17.8% last December because of rising hotel prices, according to a separate LaSalle investor survey. However, investors anticipate IRRs in the Americas will rise slightly, to 19% from 18.5%.
While hotels may not be considered a core real estate investment by most institutions just yet, they have become an attractive subclass, Mr. Jones said.
For the last year or so, brand-name hotel firms such as Starwood Hotels and Resorts Worldwide Inc., Hilton Hotels Corp. and InterContinental Inc. have been selling real estate assets as they shift back to running and franchising hotels from the real estate investment business, Mr. Jones said.