The Hotel Times - March 2008 - (Page 24)

BROKERS UPDATE Today, the U.K. budget hotel sector is worth £1.1 billion with 85,000 rooms. By 2012, it will hit £1.5 billion, according to Mintel. Reviewing and forecasting sales E M I LY H A N N A , A S S O C I AT E E D I TO R CB RICHARD ELLIS HOTELS A Budget hotels are thriving in the U.K. This Travelodge in Walsall sold for £6.5 million. CHRISTIE + CO. s statistics from 2007 are tabulated, it seems the effects of the United States’ mid-2007 economic trouble impacted some markets, making hotel sales in 2008 uncertain. In its 2008 Business Outlook, United Kingdom-based Christie + Co. said the first half of 2007 was characterized as a “wall of money” for the Europe, Middle East and Africa region, with high sources of available equity and debt and demand significantly outstripping supply. “2007 was very much a year of two halves, with the uncertainty hitting the financial markets in the second half of the year, leading to a bullish market,” said Jeremy Hill, head of hotels at Christie + Co., a business intelligence company. For the U.S. and the EMEA regions, the first part of 2007 saw a high demand-tosupply ratio and a corresponding willingness from investors to finance hotels. “It [was] a really good year, which obviously runs contrary to what’s currently happening in the market,” said Geoff Davis, HREC Investment Advisors president. “If you look at ’06 and ’07 in terms of long-term trends in transactions, it was really unprecedented in terms of total value of transactions.” But when word of the United States’ subprime crisis and resulting credit crunch spread to financial markets outside its borders, loan-to-value ratios decreased and credit margins increased, said Craig Millward, director, CB Richard Ellis Hotels EMEA in London. “The ability of banks to syndicate debt on the larger transactions also became more challenging, which meant that deal The Waldorf Hilton in London sold for £175 million in a deal brokered by CBRE. Deals on a budget While branding might be an important part of hotel sales, market segments are becoming even more integral to transactions. In the U.S., the luxury, resort and upper-upscale segments received the strongest pricing and demand in 2007, but hotels in the economy midmarket segment saw the most transactions, according to David Mumford, senior principal of The Mumford Co., a U.S.-based brokerage ﬁrm. “The budget sector offers investors greater security against any economic downturn and a formulaic model which sees less risk and quicker returns on investment,” said Craig Millward, director, CB Richard Ellis Hotels EMEA. The United Kingdom budget hotel market is expected to grow by 38 percent over the next ﬁve years, said Jeremy Hill, head of hotels at Christie + Co., citing research from Mintel. activity in the portfolio and [merger and acquisition] markets fell away,” Millward said. Still, trading fundamentals remain strong, even as interest rates increased and the supply of debt decreased. Trophy single assets and large portfolios commanded high prices, and the budget hotel sector thrived, according to Christie + Co. “High-net-worth individuals with plenty of cash to invest characterized the market toward the end of 2007 and will undoubtedly be busy buying in 2008,” Millward said. “It’s possible that later in the year and into 2009 we may see levels of gearing increase again, though it’s unlikely we will see a return to previous levels for some time.” Transactions at a glance* EMEA U.S. Asia Australia 2007 $35.7 billion $11.2 billion $10.8 billion $1.3 billion 2006 $41.6 billion $15.5 billion $5 billion $1.1 billion * In U.S. dollars Source: CB Richard Ellis Hotels; HVS; Jones Lang LaSalle Hotels 24 The Hotel Times March 2008 www.TheHotelTimes.com http://www.TheHotelTimes.com

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The Hotel Times - March 2008 Business Outlook Editorial Outlook Contents Conference Preview Capital Outlook What's Driving Growth? European Outlook Development Outlook Fractional Outlook Branding Source List Insurance Outlook Brokers Update Brokerage Outlook Lodging's Balancing Act Transactional Facts Lending Outlook Lenders Source List In Closing

The Hotel Times - March 2008

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