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The biggest story of 2014? The return of the large portfolio deal

It’s hard to believe that the year is half over already but here we are in July again. As we embark on the busiest season of all for most hotels, there’s plenty of reason for continued optimism. And as we reflect on the first half of 2014, it’s certainly been every bit as good as advertised.

In addition to surging RevPAR, ADR and occupancy levels, this year has been marked by a number of newsworthy events from continuing IPOs to a bevy of new brands being launched. However, if you ask me the biggest story of 2014 is the undisputed return of the large portfolio deal. For the last few years, we’ve seen an uptick in such deals and many experts were calling for an increase this year, but it seems the floodgates are about to open.

For example, American Realty Capital Hospitality Trust made news at the recent NYU Conference when it agreed to purchase Equity Inns and its 126 assets for roughly $1.9 billion. Just prior to that, the Innkeepers portfolio of 51 properties was acquired by a joint venture between Chatham Lodging Trust and Northstar Realty Corp. (See story p. 3).

Earlier this year, RLJ Lodging Trust acquired 10 properties from affiliates of Hyatt Hotels Corporation and is aggressively looking for more. In addition, Sage Hospitality, along with Whitman Peterson, acquired 11 select-service properties in February.

These represent just a few of the deals, but notice most of the acquiring companies—with the exception of Sage—represent hospitality REITs, many of which are flush with capital and looking to deploy it. The industry’s appetite for select-service assets remains insatiable.

What does the increase of large-scale portfolio deals mean for the industry? Well for one thing, it means investors are confident enough in the prospect of future performance to invest major amounts of capital. In addition, as properties change hands in many cases the deals are followed by a PIP from the brand or major renovations. Either way, the properties are poised to benefit from significant CapEx spending and those benefits extend to suppliers, purchasing companies and ultimately, the guest.

Most industry experts say we can expect more of the same in the second half in terms of portfolio deals, and increased transaction activity in general. With interest rates expected to tick up by next year and the cost of capital increasing, the time to buy would seem to be now. (Ironically, many feel the time is right to sell as well as property values have risen dramatically in the last several years.)

As for overall conditions, things look good for the second half. The economy is humming along, or what passes for it these days, and industry fundamentals remain solid. There are many different theories on how long this run will last for the industry, or what inning we’re in. I’m not delusional enough to think I can predict that, but one thing I feel pretty confident in saying is we should all enjoy a pretty robust 2014, and what’s left of the summer.

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