AMERICAS NEWS: Checking in

US hospitality in 2009 was akin to a “bloodbath”, Sam Zell told one real estate conference late last year. How times have changed.

You are seeing a lot of capital from outside the industry come into [hospitality] today. Monty Bennett, chief executive officer of REIT Ashford Hospitality Trust

With the real estate sector on the verge of reversing two years of negative RevPAR (revenue per available room) growth, hotels in the US have become something of a hot commodity as public, private and institutional capital looks for a place to deploy.

Granted, the volume of transactions, both debt and equity, are small compared to historical averages. In April, just $769 million of hotels were sold in the US, yet that figure represents the most active month for hotel equity transactions in two years, according to data provider Real Capital Analytics. Throw on top of that the May auction of bankrupt hotel chain Extended Stay, which The Blackstone Group, Centerbridge Partners and Paulson and Co. bid $3.92 billion for, and investment in the hospitality sector could be set for a sharper recovery than many had initially anticipated.

As Monty Bennett, chief executive officer of REIT Ashford Hospitality Trust, said: “You are seeing a lot of capital from outside the industry come into this sector today.”

Senior leaders are getting back on the road to do business. Alan Kanders, managing director at New York-based G2 Investment Group

Part of the reason is the pending reversal of negative RevPAR growth in the US. As of April this year, the US was the only region globally not to have experienced a positive percentage change in RevPAR compared to the trough of 2009, with -0.6 growth in the US against Europe’s 4.9 percent and Asia’s 24.1 percent, according to research firm Smith Travel Research.

The days of negative RevPAR though are expected to change quickly. “Senior leaders are getting back on the road to do business,” said Alan Kanders, managing director at New York-based G2 Investment Group’s new hospitality business. G2, founded by former Guggenheim Partners’ executives Todd Morley and David Conrod, is believed to be raising a $300 million closed-ended hospitality fund targeting upper and upper scale loan-to-own, recapitalisation and equity opportunities in key US gateway cities.

Kanders, formerly managing director of Lehman Brother’s global commercial real estate group targeting hospitality, declined to comment on the fund, but said with corporate travel and group bookings – regarded as the foundation of most hotel trade – starting to increase, “enthusiasm” for hospitality investment was growing, albeit from a low base.

“The industry has had a much better year in 2010 than in 2009, even though many predicted this year would remain negative [in terms of RevPAR],” he said. “There is a lot of market speculation as to when we might see a return to 2007 RevPAR. I’m not sure whether those levels could be considered normal, however I do believe that within three to five years the industry will see a return to 2006 levels.”

Starwood Capital Group, arguably one of the most well-known hospitality investors in private equity real estate circles, has already invested roughly $200 million of equity in the sector globally during the past year from its recently-closed Starwood Capital Hospitality Fund II.

Speaking at New York University’s International Hospitality Investment Conference, managing director Rich Gomel told delegates the Greenwich, Connecticut-based firm had deployed around 20 percent of the $965 million raised in Fund II, with three-quarters of the equity invested in hotel debt deals.

Although 40 percent of the $200 million had been invested internationally, through deals such as the acquisition last summer of European hotel chain Golden Tulip’s franchise and JV business, Gomel said Starwood’s attention was now focused on the US. “There’s certainly anticipation that there is going to be more distressed deals coming,” he said.