Hotel Investment Highlights

March 2009

Hotel transaction volumes

mark precipitous drop
Global hotel transaction volume posted an 80% decline in 2008,
reaching $24.2 billion.

Lower leveraged groups including institutional investors and

sovereign wealth funds stepped up their share of investment activity
amidst a less competitive buying environment.

Global hotel transaction activity is expected to gather pace in the

second half of 2009.
Contributors
Arthur de Haast
Global CEO

Arthur Adler
CEO, Americas

Mark Wynne-Smith
CEO, EMEA

David Gibson
CEO, Asia Pacific

Sue Lin Heng

Vice President, Global Hotel Capital Group

Lauro Ferroni
Research Associate, Americas
lauro.ferroni@am.jll.com

Katleen van den Brande

Vice President Research, EMEA
katleen.vandenbrande@eu.jll.com

Karen Wales
Vice President Research, Asia Pacific
karen.wales@ap.jll.com

Cover: Jones Lang LaSalle Hotels advised Starwood Hotels & Resorts in the sale of the 219-key Turnberry Resort Scotland, UK in 2008

Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide the depth and
breadth of advice required by hotel investor and operator clients, through a robust and integrated local network. In 2008, Jones Lang LaSalle
Hotels provided sale, purchase and financing advice on over $3.7bn worth of transactions globally relating to more than 120 assets. In
addition, advisory and valuation services were provided on more than 600 assignments. The global team comprises over 240 hotel
specialists, operating from 32 offices in 19 countries. The firm’s advice is supported by a dedicated global research team, which produced 87
publications in 2008 in addition to client research. Jones Lang LaSalle Hotels’ services span the hospitality spectrum; from luxury single
assets and large portfolios to select service and budget hotels, resorts and pubs. Their services include investment sales, mergers and
acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract
negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels’ clients have access to the resources
of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com.
 Hotel Investment Highlights · March 2009 1

Global overview
Hotel transactions volumes start to approach decade trough With the exception of Europe which benefited from an infusion of
The global hotel transactions market posted a steep decline of 80% capital from the Middle East, all other regions have seen significantly
over 2007 levels to total $24.2 billion in 2008. Whilst still higher than reduced cross border capital inflows as investors sought to invest
the historical decade low of $10 billion in 2002, 2008 saw closer to home and in markets they were most familiar with. In 2008
progressively larger declines in transaction volumes with every investors from Asia Pacific, America and Europe accounted for
successive quarter to reach a low of $1.9 billion in the last quarter of 100%, 80% and 65% of all transactions within their respective
the year, traditionally a very active period. This represents the regions.
weakest fourth quarter performance for the global hotel transactions
market over the decade. Reflecting the desire of investors to mitigate perceived risk,
investment in mature markets has dwarfed that of emerging markets
– in 2008, 90% of all transactions took place in mature markets
Global hotel transaction volume 2000 - 2008
worldwide with the lion’s share concentrated within Western Europe,
United States and Japan. Within the second half of 2008, this figure
140.0 is even more pronounced, with investment in established markets
120.0 accounting for 94% of all hotel transactions undertaken globally.
100.0
Volume ($B)

80.0 Due to significant consolidation activity within the first half of the
year, REITs overtook private equity as the largest net buyer of hotels
60.0
in 2008, although unsurprisingly overall activity for both groups was
40.0
significantly reduced in the second half of the year. Conversely,
20.0 longer term, lower leveraged groups including institutional investors
0.0 and sovereign wealth funds have stepped up investment activity
2000

2001

2002

2003

2004

2005

2006

2007

2008

amidst a much less competitive buying environment – both groups

were responsible for the acquisition of approximately $2 billion worth
H1 H2
of hotel assets in 2008, and are expected to remain active buyers
Source: Jones Lang LaSalle Hotels going into 2009.

The magnitude of the year-on-year decline is largely attributable to Looking ahead, all indicators point to a subdued first half of 2009 as
the lack of large portfolio sales, which were prevalent in 2007. In credit sources remain lean and investors wait on the sidelines until
2008, only one portfolio transaction of over $1 billion occurred markets bottom. Distressed sales are not yet widely evident and
compared to 17 in 2007. In addition, the majority of transactions following the trend from the second half of 2008 we expect that the
were smaller in lot size – only 54% of global hotel transactions were majority of the deals that take place within the first half of the year
more than $100 million, compared to 87% of all transactions in 2007. will be done on either an all-cash basis, with assumable debt or
some level of vendor financing, or on very low leverage terms.
By region, the largest drop was recorded in the Americas (-81%),
followed by Asia Pacific (-77%), whilst EMEA proved to be more As the year progresses, however, and as transaction volumes
resilient (-58%). With $11.8 billion worth of hotels traded in 2008, approach decade trough levels, we believe the combination of
EMEA accounted for almost half of global transaction volumes and deteriorating trading fundamentals and the build up of refinancing
replaced the Americas, which has led the market since 2004, as the pressures will result in a narrowing gap between buyer and seller
most active market for hotel investment. expectations and further retractions in investment yields. As such
global hotel transaction activity is expected to gather pace in the
second half of 2009.
2 Hotel Investment Highlights · March 2009

Americas
Hotel transaction volumes mark precipitous drop Transactions slow across all segments
Hotel transaction volumes in 2008 across the Americas region During 2008, investment in luxury hotels and resorts comprised 12%
slowed to $9.7 billion, from a record-breaking $48.8 billion achieved of Americas transaction volume. Upscale and mid-scale assets
during 2007.1 Across the Americas, transactions were recorded in accounted for 38% and 22% of transactions, respectively. The
the U.S., Canada, Mexico, Jamaica, Barbados and Anguilla. remaining 29% was invested in select service assets, down from 39%
in 2007 which saw several large select service portfolio transactions.
Transaction volume in the U.S. alone reached $8.5 billion in 2008,
down 81% from the $45 billion recorded in 2007. Despite marking a Americas hotel transaction volume by property segment
precipitous fall, transaction volumes in 2008 still exceeded the
volumes realised during the trough years of 2001 to 2003.
50.0

40.0

Volume ($B)
Decreasing liquidity and deteriorating demand fundamentals caused
transaction volumes to trail off as the year progressed. The first 30.0

quarter of 2008 was the strongest, with transactions amounting to 20.0

$3.9 billion, slowing to $684 million in the fourth quarter. Portfolio 10.0
transactions marked the most staggering decline, down 89% to $4 0.0
billion in 2008. Single-asset volume slowed 59% to $5.7 billion. 2004 2005 2006 2007 2008
Luxury Upscale Mid-scale Select service
Americas hotel transaction volume 2000 - 2008
Source: Jones Lang LaSalle Hotels

50.0
Across the Americas, surveyed average cap rates for new
40.0
Volume ($B)

acquisitions had increased by 60 basis points, reaching 9.2% in

30.0 October 2008 (over our June 2008 survey). Cap rates will continue
20.0 to climb in 2009 as cash flows decline and the weighted average
10.0 cost of capital remains high.
0.0
Top single assets continue to garner investor interest
2000

2001

2002

2003

2004

2005

2006

2007

2008

The top 10 Americas single-asset transactions in 2008 amounted to

H1 H2 $2.2 billion, representing 23% of total transaction volume. The
Source: Jones Lang LaSalle Hotels
average price per key of these top ten single assets amounted to
$366,000, down from $523,000 for the top 10 transactions tracked in
2007. In 2008, only eight single-asset transactions exceeded the
Slowdown in lodging fundamentals exacerbated during Q4 $100 million mark, compared to 31 such transactions in 2007.
U.S. RevPAR maintained year-over-year growth through September
2008. But waves of dire economic news, particularly the severe Comparing the price per key decline across all transactions in 2008
difficulties experienced by the banking and financial services from 2007 is not representative as several large select service hotel
industry, intensified the decline of lodging fundamentals beginning in portfolio transactions in 2007 deflated the average price per key.
October and full-year 2008 RevPAR declined by 1.9%.2 Hit hardest However, analysing single-asset transactions only indicates that per
by decreased demand are luxury hotels and resort properties. The key values decreased by 7% in 2008 from 2007 levels.
luxury segment recorded a 5.2% RevPAR drop during 2008, with
monthly declines as high as 20.7% in November.3 U.S. RevPAR is
forecast to decline by 11.2% in 2009.4

1 Excludes The Blackstone Group’s acquisition of Hilton Hotels Corporation (tracked as a global
transaction)
2 STR Global
3 STR Global, compared to November 2007
4 PricewaterhouseCoopers, January 2009
 Hotel Investment Highlights · March 2009 3

Americas top single-asset hotel transactions 2008

Property name Location Closing date Price ($M) Rooms Price per key ($) Buyer Seller
Hyatt Regency Waikiki Honolulu, HI Jul-08 410.0 1,229 333,605 Whitehall Street Real Estate Azabu Buildings Co Ltd
Funds & Hyatt Corp.
(1)
Fontainebleau Miami Miami, FL Apr-08 375.0 1,500 Nakheel Hotels Fontainebleau Resorts, LLC
Beach Resort (post renovation)
Hyatt Regency Century Plaza Los Angeles, CA Jun-08 366.5 726 504,821 Next Century Associates Sunstone Hotel Investors, Inc.
(2)
One & Only Palmilla San Jose Feb-08 315.0 172 1,831,395 Nakheel Hotels Whitehall Street Real
Del Cabo, Mexico Estate Funds
Renaissance M Street Hotel Washington, D.C. Feb-08 141.3 355 398,028 Affiliate of Losan Northview Hotel Group LLC
Hotels World & Westbrook Partners
James Hotel Chicago, IL Jan-08 136.6 297 459,768 Denihan Hospitality Group The James Group
Sheraton Grand Sacramento Sacramento, CA Apr-08 130.0 503 258,449 David Taylor & City of Sacramento
CIM Group Inc.
Hyatt Regency Garden Grove, CA Oct-08 112.0 654 171,254 Inland American Ashford Hospitality Trust
Orange County Lodging Group, Inc.
Hotel 57 New York, NY Jan-08 99.0 200 495,000 Apple REIT Eight Rockpoint Group
Sheraton Gateway Los Angeles, CA Aug-08 97.0 802 120,948 The Harp Group Lubert-Adler
Los Angeles Airport*

(1) Represents purchase of 50% stake in asset

(2) Represents total enterprise value, includes 27-holes of golf. Nakheel Hotels purchased 50% stake in asset
*Vendor advised by Jones Lang LaSalle Hotels
Source: Jones Lang LaSalle Hotels

Average price per key for Americas single-asset transactions High-quality, branded, well-located assets are favoured by most
lenders and accounted for much of the transaction volume during
Year Average price Average price per key 2008. But during the last two months of 2008, no larger full service
2006 $62,400,000 $224,000 assets transacted, reflective of the illiquid debt markets.
2007 $52,200,000 $183,000
2008 $39,500,000 $170,000 Large portfolio transactions absent in 2008
Source: Jones Lang LaSalle Hotels In 2008, no portfolio transactions exceeded the $1 billion mark in the
Americas, compared to eight such transactions in 2007. The largest
portfolio transaction recorded during 2008 was Inland American Real
The largest single-asset transaction recorded in the Americas during
Estate Trust’s acquisition of 22 assets from RLJ Development for
2008 was the sale of the Hyatt Regency Waikiki. The transaction
$900 million. While the deal closed in February, it was announced in
was announced in 2007 but did not close until July 2008 following a
2007 in a less restrictive financing environment.
price reduction. Also topping the list was Nakheel Hotels’ 50%
investment in two resort properties, the Fontainebleau Miami Beach
Also among the largest portfolio transactions was Chartres Lodging
Resort and One & Only Palmilla in Los Cabos, Mexico.
Group’s acquisition of five Adam’s Mark properties from the HBE
Corporation, encompassing over 4,800 rooms. In August 2008,
Among the top 10 single-asset transactions was Lubert-Adler’s sale
Jones Lang LaSalle Hotels represented Prudential Real Estate
of the 802-key Sheraton Gateway Los Angeles Airport for $97
Investors in the sale of three Monaco hotels located in Chicago,
million, a transaction advised by Jones Lang LaSalle Hotels.
Denver and Salt Lake City for $186 million, commanding a price per
Additional notable single-asset transactions advised by Jones Lang
key of $306,900. In addition, Jones Lang LaSalle’s Real Estate
LaSalle Hotels included the sale of the 696-key Hyatt Regency
Investment Banking group arranged the acquisition financing for the
Phoenix for $96 million and the sale of the 500-key Hilton Dallas
buyer.
Lincoln Centre for $72.25 million.
4 Hotel Investment Highlights · March 2009

Americas top portfolio transactions 2008

Property name Location Closing date Price ($M) Hotels Rooms Price per key ($) Buyer Seller
RLJ Urban Fund Inland Multiple Feb-08 900.0 22 4,061 221,620 Inland American Real RLJ Urban Fund (Affiliate
Hospitality Estate Trust Inc of RLJ Development)
Adam's Mark Portfolio Multiple Feb-08 525.0 5 4,867 107,869 Oxford Lodging HBE Corp.
Balazs Portfolio Multiple Apr-08 240.0 4 590 406,780 Ferrado Group Andre Balazs Properties
Kimpton Hotel Monaco Multiple Aug-08 186.0 3 606 306,931 Cornerstone Real Estate Prudential Real Estate
Portfolio* Advisers, LLC Investors

*Vendor advised by Jones Lang LaSalle Hotels

Source: Jones Lang LaSalle Hotels

Highly-leveraged investors became net sellers during 2008 Institutional investors will likely be among the more active buyer
Private REITs were the largest buyer of hotel assets during 2008. groups during 2009. REITs and public hotel companies will likely
While overall Americas transaction volume dropped by 80% in 2008, continue to shed assets as they seek to preserve cash, pay down
private REITs’ investment in hotels actually increased by a third. debt and invest in their own shares. Private equity groups, having
Institutional investors and owner/operators were also among the invested over $50 billion in Americas hotel real estate from 2005 to
more active buyers during 2008, acquiring $1.7 billion and $1.4 2007, will not re-emerge as active buyers in the near term until
billion in assets, respectively. Both REITs and institutional investors operating fundamentals stabilise and liquidity improves.
were net buyers in 2008.
Global and inter-regional capital flows on the downturn
Investments funded by ‘global’ sources of capital (such as private
Region buyer and seller net shift 2007 and 2008
equity firms that source capital globally despite being based in the
Developer U.S.) declined greatly during 2008, as highly leveraged investors
Government such as The Blackstone Group largely withdrew as buyers.
Hotel operator
HNWI
Institutional investor Region source of investment - change in market share 2008 over 2007
Private company
Private equity Asia
Public company Domestic
REIT (public & private) Europe
Sovereign wealth fund Global
Middle East
-30% -20% -10% 0% 10% 20% 30%
North America
Net shift^
-15% -10% -5% 0% 5% 10%
2007 2008
Change in market share
^Net shift = the difference between the respective group's market share as a buyer and its
Source: Jones Lang LaSalle Hotels
market share as a seller during the year. A positive net shift indicates group was net buyer;
a negative net shift indicates net seller
Source: Jones Lang LaSalle Hotels
The proportion of capital from European and Middle Eastern buyers
relative to total transaction volume increased in 2008, accounting for
Hotel operators and private equity groups were the largest sellers by 6.2% and 7.1% of acquisitions, respectively. However, the absolute
volume during 2008, selling assets totalling $2.3 billion and $2.1 value declined in both cases. Furthermore, Asian investors did not
billion in value, respectively. Private equity groups were the most acquire any hotel assets in the Americas in 2008. During 2009,
pronounced net sellers during 2008. foreign investors will likely keep their capital closer to home until the
U.S. economy stabilises and better buying opportunities emerge.
 Hotel Investment Highlights · March 2009 5

New CMBS originations not expected in near term Lack of liquidity to further drive down transactions
Lending activity had already slowed drastically in early 2008, and Worsening demand fundamentals and the continued financing
came to a near stand-still during the latter part of the year. drought are expected to cause Americas hotel transaction volume to
Prospective borrowers must hence rely almost exclusively on slow further during 2009. Transaction activity during the first half of
balance sheet lenders (insurance companies, national and regional 2009 is expected to remain very subdued as access to credit
commercial banks and community banks), many of whom remain remains exigent.
cautious amid the economic uncertainty. Furthermore, alternative
lenders have emerged for both senior and mezzanine lending given In the meantime, hotel transactions more likely to get done are those
the extremely favourable risk-adjusted returns that can be achieved. with seller financing, assumable debt or with low-leverage investors.
Sales of select service assets will be less impacted during 2009 due
Leverage levels on senior hotel loans are expected to remain around to their relatively smaller transaction size and the potential to finance
50% to 60%, and sizing will primarily be based off coverage ratios — such acquisitions through community banks and SBA loans.
in the 1.45x to 1.60x range — and higher debt constants. Non-recourse
loans are virtually non-existent. Loan terms will contain coupon or Transactions will pick up later in the year as owners face more
index floors preventing borrowers from benefiting from the historically distress due to cash flow falling short of debt coverage and/or due to
low LIBOR and Treasury rates. Furthermore, pricing for senior debt maturity defaults. Also, as lenders increasingly take control of
has increased significantly due to the demand for debt capital. assets, they will sell some assets as liquidity returns. Loans will
continue to be written down, which will allow lenders to sell at current
market values. The pick-up in the transactions pace will also be
determined by pending legislation. Furthermore, investors will
increasingly make decisions to dispose of assets as the gap
5Insurance companies, national and regional commercial banks and community banks between sellers’ expectations and investors’ view of value narrows.

Jones Lang LaSalle Hotels advised Lupert-Adler in the sale of the 802-key Sheraton Gateway Los Angeles Airport in 2008
6 Hotel Investment Highlights · March 2009

EMEA
EMEA hotel transactions down 60% in 2008 Spain was the only country which experienced growth in hotel
Following five years of consecutive growth, hotel transaction investment volume in 2008. The property market in Spain has been
volumes across the EMEA region fell by 60% to $11.8 billion in 2008, one of the most affected in EMEA. With property prices plummeting
a clear example of the impact that challenging economic conditions across the country, investors were eager to snap up cheap deals in
and illiquid debt markets had throughout the year. This reduction in this notoriously illiquid market, leading to a total disclosed
hotel investment activity was mainly due to fewer portfolio investment volume of $1.2 billion compared to $0.5 billion in 2007.
transactions as illiquidity in the debt markets made it difficult to raise Growth in activity was also experienced in MENA with a number of
the quantum of finance seen in recent years. Portfolio transactions hotels sold in UAE, Egypt and Israel.
were down 74% in 2008, accounting for only 45% of the total deal
volume in the year, compared to 69% in 2007. In contrast to 2007, hotel transactions were dominated by vacant
possession deals and those subject to lease contracts. Management
contracts accounted for just 7.8% of the transacted volume,
EMEA hotel transaction volume 2000 - 2008
substantially down from the 22.9% recorded in the previous year.

30.0 Q4 of 2008 brings end to years of positive trading growth

25.0 2008 proved to be the start of a challenging time for hoteliers in
20.0 EMEA. Although the year started off strongly across the region, hotel
Volume ($B)

15.0 performance began to deteriorate in the second half of the year, in

10.0
particular following the failure of several banks in September.

5.0
Overall growth in average room rates early in the year was able to
0.0
drive positive year end results for the majority of the region.
2000

2001

2002

2003

2004

2005

2006

2007

2008

Occupancy levels, on the other hand, showed a fall during 2008

H1 H2 particularly in the fourth quarter. Only a few cities experienced a
decline year on year, with this predominantly a result of new supply
Source: Jones Lang LaSalle Hotels
coming on stream.

While the credit crunch began to slowly impact the investment Growth in room yield remained strong in the Middle East, although
market in 2007, the first three quarters of 2008 still saw a number of reduced substantially in Dubai towards the end of the year, showing
transactions close, reaching a total volume of $10.9 billion. the region is not immune to the current market conditions. Also
Nevertheless, this was a substantial fall compared to the previous EMEA’s gateway cities, London and Paris, continued to report
year as vendors refused to lower their price expectations. In the face growth in hotel performance. Deterioration in occupancy did become
of economic uncertainty, and with the collapse of Lehman Brothers apparent, especially in the last quarter of the year but this was
in September, the debt markets became increasingly more cautious overshadowed by strong performance earlier in the year.
and expensive. The September events proved to be an eye opener
for many with only $852 million transacting in the last quarter, an The picture was not as positive in eastern Europe, where markets
82% decrease compared to the same period in 2007. tend to be highly dependent on international tourism. Strongest
growth in this area was reported for Istanbul and St. Petersburg,
The strongest fall in investment volume was reported for the UK, while star performers of recent years such as Prague and Budapest
where the investment volume decreased by almost 70% year on saw falls of up to 11%.
year. Results on the continent were slightly better but nevertheless,
the UK remained the leading country in EMEA based on transacted
volume, with $3.2 billion accounting for 27% of the total market
volume. Germany and France also saw a significant proportion of
hotel investment activity, with around $1.5 billion and $1.0 billion
respectively. Germany maintained its second place and accounted
for 12.3% of the total investment volume, whereas France
represented 8.5%.
 Hotel Investment Highlights · March 2009 7

Debt market tightens The majority of portfolio transactions recorded in 2008 were made
Raising senior debt in EMEA for hotel real estate has become an up of two or three properties and we did not see many large
increasingly challenging proposition over the past 18 months. The corporate transactions which were prevalent in recent years. The
close of the securitisation and Pfandbriefe markets has cut off a exceptions to this trend were the sale of the Northern European
supply of cash whilst balance sheet lenders are hoarding their Properties portfolio in Finland for $1.3 billion to a real estate fund
Pounds and Euros, further compounding the slowdown in lending. managed by CapMan, and the sale of a 50% stake in Quinlan’s
Jurys Inn portfolio to the Oman Investment Fund for $872 million.
Some of the large balance sheet lenders are still open for business Another significant portfolio transaction was the sale of two Thistle
but as the only show in town, they are in a position to be very hotels in London to the Abu Dhabi Royal Family for $637 million,
selective with the deals they consider. As there is no certainty in equating to just under $1 million per key (although the price was
where property values lie, Loan-to-Value covenants have become significantly influenced by the fact that these properties have
overshadowed by conservative Debt-to-EBITDA multiples. Current planning consent to be converted into residential).
lending parameters are mirroring those in the late '90s with Debt-to-
EBITDA multiples targeted at between 5 and 7. Throughout 2008, there were only 17 recorded single asset
transactions with a volume in excess of $100 million, a significant
The fall in the SWAP rates has softened the increase in margins decrease on previous years which highlights the difficulties buyers
which have reached 300 basis points, leaving overall debt costs are currently facing in financing large transactions.
relatively static while amortisation schedules have taken a back seat
as most loans are offered with a maximum term of three to five years. Some of the largest sales experienced during the year comprised
development sales in London. The Metropole Building was sold by
Reduction in lot size and frequency of portfolio transactions the Crown on a long lease for $266 million to a consortium
comprising International Hotel Investments, the Libyan Foreign
Unlike what had been the norm in recent years, 2008 hotel investment
Investment Company and Istithmar Hotels, who will restore the
volume was made up mainly of single asset transactions, reaching
historic building and open it as a Corinthia hotel.
$6.5 billion, whilst portfolio transactions achieved $5.2 billion.

EMEA top ten hotel transactions 2008

Property name Location Closing date Price ($M) Rooms Price per key ($) Buyer Seller
Northern European Properties Scandinavia Mar-08 1,269.0 n/a n/a CapMan Northern European Properties
portfolio (39 hotels)
(1)
Jurys Inn Portfolio (50% Stake) Ireland, UK Aug-08 872.0 1,874 465,000 Oman Investment Fund Quinlan Private
Thistle Portfolio (2 hotels) London Mar-08 637.0 638 999,000 Abu Dhabi Royal Family CPC Group
Meridien Portfolio (2 hotels) Portugal, Algarve Jan-08 265.0 350 756,000 JJW Hotels & Resorts Starman
Starwood Portfolio (3 hotels)* Italy Jan-08 250.0 419 596,000 EST Capital Starwood Hotels & Resorts
Metropole Building London Feb-08 266.0 283 939,000 Int’l Hotel Investments/Libyan Crown Estate
Foreign Investment Co/Istithmar
Ambassador Paris Apr-08 239.0 294 811,000 Westmont Starwood Capital
(2)
Prince de Galles Paris Sep-08 205.0 168 1,221,000 Mussalam Family Caisse Autonome nationale de
la sécurité sociale dans les mines
Crowne Plaza London - The City* London Jul-08 169.0 203 832,000 ARG Hotels Limited Gruppo Statuto
Sky Hotel Barcelona Jun-08 160.0 259 614,000 Sol Melia/ CAM, Invernostra Habitat Grupo Empresarial
and Caja Duero

(1) Room number reflects the 50% stake included in the sale
(2) The sale involved the building but not the business
*Vendor advised by Jones Lang LaSalle Hotels
Source: Jones Lang LaSalle Hotels
8 Hotel Investment Highlights · March 2009

The Hotel Silken was sold by way of a forward commitment to the Region buyer and seller net shift 2007 and 2008
Spanish hotel investment fund Losan Hotels World for $207 million,
Developer
representing $1.2 million per key although this transaction is yet to
HNWI
complete. The iconic Café Royal in Regent Street was also sold by Hotel operator
the Crown on a long lease to the Israeli property company Alrov Institutional investor
Group, who will redevelop the property into a five-star hotel. Investment fund
Private company
Other large transactions included the sale of the Ambassador and Private equity
Property company
Prince de Galles in Paris. The latter was bought by a Middle Eastern
Public company
Investor for a sum of $205 million. Halfway through 2008, Statuto Group
REIT
sold the Crowne Plaza – The City hotel after acquiring the hotel at the Sovereign wealth fund
beginning of 2007. The hotel was sold to Galadani for $169 million.
-40% -30% -20% -10% 0% 10% 20%

Net shift^
Private equity firms move to the background
2007 2008
Changing debt markets are causing a shift in the most active buyer
type as aggressive highly leveraged buyers, such as the private ^Net shift = the difference between the respective group's market share as a buyer and its
market share as a seller during the year. A positive net shift indicates group was net buyer;
equity groups, reduce their investment activity and give way to other a negative net shift indicates net seller
categories of buyers who have struggled to understand the private Source: Jones Lang LaSalle Hotels
equity pricing metrics during the last few years.

The market saw an incredible uplift in Middle Eastern capital, from

Surprisingly, private equity firms were still one of the main purchasers
5.6% in 2007 to 26.7% in 2008, as several countries have set up
in 2008, however, this was largely due to their acquisition of the
sovereign wealth funds for investment, driven by a desire to diversify
Northern European properties portfolio for $1.3 billion. Overall, hotel
from their natural resource based wealth. 2008 saw a significant
operators were the dominant buyer type in 2008. Although the
decline in investments from the U.S. representing only 2.8% of
group’s actual invested volume fell compared to 2007, their market
capital invested in the region, primarily driven by the lack of private
share as a buyer in the market grew substantially as activity from
equity groups in the market.
other investors fell to a greater extent. While hotel operators were
net sellers in 2007, market conditions made them net buyers in
2008. Investment funds have also become more active in 2008 as Region source of investment - change in market share 2008 over 2007
they tend to be less aggressive and have longer-term strategies
Asia
compared to private equity firms. Australasia
Domestic
Being most affected by the weakening property market across the Europe
region, property companies and REITs significantly reduced their Global
market share, with property companies even becoming the main Middle East
United States
seller group in 2008. This is another significant shift from recent
years, when hotel operators led the way in sales as they focused on -15% -10% -5% 0% 5% 10% 15% 20%

an asset-light growth strategy. Change in market share

Source: Jones Lang LaSalle Hotels

Although domestic capital has always been a main source of
investment, in recent years there was a significant increase in the
Outlook
amount of European and global capital. As investors became more
risk averse due to the financial turmoil domestic capital became As the difficulties in the financial markets continue and investor
once again the dominant source of capital, representing 34% of the sentiment worsens, it is expected that 2009 will be another
total volume in 2008. challenging year, with limited investor activity driven by a significant
drop in portfolio sales and further decline in single-asset volume. It is
likely that investors will be fairly inactive in the first half of the year,
with activity slightly improving in the third and fourth quarters as a
small number of banks come back into the market.
 Hotel Investment Highlights · March 2009 9

What we expect to see through 2009 is more consensus on pricing We see the major lenders moving forward through 2009 with the
as both buyers and sellers accept that we saw truly exceptional selection of a variety of strategies to recover value in the medium
conditions in the last two years and we have to look back to the mid term. This will mean some changes of ownership and control,
1990’s pricing metrics for where the market will settle certainly in the including mergers, which will also cause the transactional activity to
short term. Investors’ focus has to be on making capex funds increase in comparison to the first half. We also predict that M&A
stretch further and effectively managing both their operator and among some of the larger operators will increase as the
employees as they cannot rely on the market to carry them forward. development pipeline is reducing so quickly and the synergies
between merged operators will become increasingly attractive as
Moreover, as owners see the need to refinance acquisitions and market demand falls off.
banks start to take action on non-performing loans, it is likely that
there will be some distressed property on the market, which should Market conditions made hotel operators net buyers in 2008 and we
result in increased investment activity. Investment activity will be are likely to see more of this type of activity in the short term as,
mainly led by lower leveraged, long term players looking for apart from a small number of specialist hotel investors, operators are
opportunistic acquisitions which would not be available in more the only stakeholder who really needs the properties in order for their
buoyant market conditions. As investors continue to focus on local business models to thrive.
markets to decrease risk and given the increased importance of
relationship lending, domestic investment will remain the dominant While yields have been moving out for all commercial property,
source of capital. hotels in poor condition, weaker locations and encumbered by
management agreements are seeing the largest movement. In 2009,
hotel investors will generally favour lease opportunities given their
more reliable income streams, and either trophy assets in prime
cities such as Paris and London, or hotels in the economy sector,
which trade well in down cycles.

Jones Lang LaSalle Hotels advised Gregory Park Limited in the sale of the 133-key Four Seasons Hotel Hampshire, England in 2008
10 Hotel Investment Highlights · March 2009

Asia Pacific
A hiatus of transactions in 2008 Asia Pacific quarterly hotel transaction volume
Hotel transaction volumes across Asia Pacific slowed throughout
2008 to total just $2.8 billion as the tight credit environment became 5.0
a stranglehold on global investment activity. While transaction 4.0

Volume ($B)
volumes – boosted by the sale of the Westin Tokyo ($714 million) – 3.0
just pipped the 2005 total there was a notable decline in portfolio
2.0
sales compared to the last few years. Compared to 2007, the
1.0
number of transactions reduced by 40% whereas the dollar value
declined by a more significant 77% with very few large-scale 0.0

transactions occurring ($100 million plus). Q307 Q407 Q108 Q208 Q308 Q408
Hotels Development projects

Asia Pacific hotel transaction volume 2000 - 2008 Source: Jones Lang LaSalle Hotels

14.0 Investment goes local

12.0 Lower volumes were largely attributable to the slowdown in activity
10.0 by highly leveraged players, such as global private equity and real
Volume ($B)

8.0 estate funds, who have dominated activity over the last few years.
6.0
As lending institutions have grappled to understand the extent of
their exposure, they have sought to limit their risk, reducing the
4.0
amount of debt which is available (from both global and regional
2.0
lenders).
0.0
2000

2001

2002

2003

2004

2005

2006

2007

2008

Prior to monetary intervention in the second half of 2008, the cost of

capital had increased with spreads widening between 50 and over
Single asset transactions Portfolio transactions
150 basis points. Financing has also been made more difficult by a
Source: Jones Lang LaSalle Hotels reduction in loan to value ratios and strict adherence to interest
cover guidelines by major lenders, to varying degrees across the
A surge in investor demand, underpinned by an abundance of both region.
equity and competitively priced debt, resulted in record levels of
investment in the Asia Pacific hotel sector over the four years to As economic growth slowed through the second half of 2008 and
2007. An improved outlook for earnings growth also aided this inflationary pressures subsided, central banks started to loosen
unprecedented demand for the sector. monetary policy and interest rates have reduced. This is expected to
continue through 2009 as governments seek to provide fiscal
Having peaked in the second quarter of 2007, hotel transactions stimulus to local economies, providing some welcome respite to
have declined on average by 15% each quarter over the last 18 investors. These factors, combined with the ensuing positive yield
months to record less than $400 million in the fourth quarter of 2008 spread, are likely to tempt more investors back into market and instill
– traditionally a very busy closing period. A lack of money for some semblance of confidence.
property lending, coupled with weak investor sentiment, has led to a
stagnant market. It has also been difficult to price assets in an
environment where there have been few transactions and
accordingly it will take longer to arrive at a balanced market than in
the past.
 Hotel Investment Highlights · March 2009 11

Negative sentiment infiltrates discretionary spending Medium term growth prospects remain strong
While remaining positive in most markets for the first six months of While the short term outlook remains quite bleak, Asia Pacific hotel
2008, hotel trading started to wane in the second half of the year fundamentals are still relatively healthy. Medium term growth
and with notable declines in some markets during the last quarter prospects remain strong as evidenced by two corporate investments
compared to 2007. The major financial centres – Hong Kong, in regional hotel operating platforms. Japan’s Orix Corporation
Singapore, Sydney and Tokyo – recorded RevPAR declines of acquired a stake in Tune Hotels in mid 2008, while Shinsei Bank
between 5 and 15% during the last three months of the year, with acquired a stake in Lemon Tree Hotels in a joint venture with Kotak
more pronounced declines in the upper tier segments. Realty Fund.

The MICE market has been particularly hard hit with large-scale Over the next few years, operators will find it increasingly hard to
conferences and corporate meetings postponed or cancelled, while grow portfolios organically with less capital available for expansion.
a reduction in food and beverage outlet revenues has occurred as Strategic plans that were drawn up over the last few years will need
consumers have reigned in discretionary spending. to be critically evaluated to assess where the best growth
opportunities lie. The recent bear run on the world’s share market
A counter to this has been a notable slowing in hotel development has also significantly reduced the market capitalisation of many
pipelines across the region with a number of announced projects public hotel companies which could result in some merger and
being put on hold. For example, Jumeirah recently announced they acquisition activity.
would delay the opening of their first hotel in Shanghai, while a
number of hoteliers are reported to have shelved plans for hotel Notable retreat from emerging markets
projects in Indian cities; Bangalore, Hyderabad, Pune. Even projects Transaction volumes across Asia Pacific’s emerging markets
in New Delhi have been cancelled or delayed despite the upcoming declined to a four year low as the flow of cross-border capital dried
Commonwealth Games in 2010. up and investors retreated to the safety of domestic or intra-regional
investment. Typically emerging markets attract high levels of
Asia Pacific RevPAR growth 2008 (y-o-y): Key global cities investment during periods of strong economic growth as
opportunities in mature markets become scarce.
50%

40% Asia Pacific origin of buyers and sellers net action 2008
30% Global
20% Americas
EMEA
10%
Asia Pacific
0%
-40% -20% 0% 20% 40%
-10%
Net shift
-20%
Source: Jones Lang LaSalle Hotels
-30%
Aug
Jan

Feb

May

Sept
June

July

Oct

Nov

Dec
Mar

Apr

Singapore (4-star) Hong Kong (4-star)

Tokyo (upscale) Sydney (3-5 star CBD)

Source: STR Global, Jones Lang LaSalle Hotels

12 Hotel Investment Highlights · March 2009

Asia Pacific top five hotel transactions 2008

Property name Location Closing date Price ($M) Rooms Price per key ($) Buyer Seller
Westin Tokyo Tokyo Feb-08 718.4 438 1,640,183 GIC Morgan Stanley
Westin Melbourne Melbourne Dec-08 105.6 262 403,053 TA Enterprise Bhd Cbus
Hotel JAL City Naha Okinawa Jun-08 76.8 304 252,632 Risa Partners Zecs
Novotel Rockford Darling Harbour* Sydney Jun-08 72.8 230 316,522 TCC Land Rockford Hotel Group
Hotel Fortuna Foshan Mar-08 70.6 408 173,039 Capital Estate Hotel Fortuna (Hong Kong) Ltd.

*Vendor advised by Jones Lang LaSalle Hotels

Source: Jones Lang LaSalle Hotels

Investment in Asia Pacific’s emerging markets peaked through 2006 Asian investors make in-roads across Australia as currency
and 2007 at 37% ($2.7 billion) and 20% ($2.5 billion) of the total weakens
volume respectively, topping the average annual level of investment Significant currency swings through the second half of 2008 also
across the entire region of the previous decade. Transaction started to impact hotel investment trends and is expected to remain
volumes through 2008 saw a notable reversal of this trend as the a factor in 2009. Having been the domain of domestic investors over
outlook for global economic environment weakened and it became the last few years, well capitalised Asian investors are being tempted
clear that Asian economies, in particular China and India, had not back into the Australian hotel market, taking advantage of a weaker
decoupled to a sufficient extent to shield their economies from the Australian dollar, after dominating the scene in the 1990s when
ensuing downturn. market conditions mirrored today’s. Over the last 10 years, Asian
investors have proved to be very countercyclical purchasers.
Hotel investment in China slowed to a four year low; hit by a slew of
government regulations over the last couple of years, aimed at Asian investors snared two prime assets in Australia’s key cities in
cooling the overheating property market. The frequent changes to 2008, Novotel Rockford Darling Harbour in Sydney and Westin
investment regulations, as well as restrictive debt markets, have Melbourne. On the contrary, Middle Eastern investors, who had
made executing a transaction a lengthy process, particularly for started to show greater interest in Asia Pacific hotels over the last
overseas investors. few years, particularly in emerging markets, withdrew from the
market through 2008.
The sale of the Grand Castle Hotel in Xi’an in a deal arranged by
Jones Lang LaSalle Hotels took around eighteen months to Region buyer and seller net shift 2007 and 2008
complete. The prominent 337-room asset, sold with vacant
possession, was divested following the completion of an extensive Developer
Government
refurbishment through an extensive off-market campaign. The
HNWI
property was sold to Singapore-based Park Hotel Group, who also
Hotel/SA operator
added the Hilton Otaru in Hokkaido to its portfolio late in 2008. Institutional investor
Investment fund
Other
Private company
Private equity
Public company
Receiver
REIT
Sovereign wealth fund
Specialist hotel investor

-40% -20% 0% 20% 40%

Net shift^
2007 2008

^Net shift = the difference between the respective group's market share as a buyer and its
market share as a seller during the year. A positive net shift indicates group was net buyer;
a negative net shift indicates net seller
Source: Jones Lang LaSalle Hotels
 Hotel Investment Highlights · March 2009 13

Outlook
Recovery (and market liquidity) will only come once the market re- The RevPAR declines which were recorded during the last quarter of
sets its expectation to the new economic reality. Markets which re- 2008 are expected to gain pace through 2009 as consumer
price more quickly, such as Australia, are more likely to see deals in sentiment remains weak, while government financial stimulus
2009 once new pricing expectations are established. The crux, packages are expected to take up to 12-18 months to take full effect.
however, will be that until banks free up their credit restrictions, the
market will remain stagnant. As the year progresses, yields are expected to realign to more
accurately reflect the quality of an asset as investors give greater
Transaction volumes are therefore expected to remain subdued in credence to the basics of hotel investment – location, income,
the first half of the year but exhibit more activity in the second half of management, contract terms and gearing. However, as confidence
the year. Companies that geared heavily during the boom times now mounts and investors start to price in a trading upswing, yields will
face a triple impact – lower earnings, falling asset values and once again start to contract.
growing difficulties in rolling over debt. For those unable to refinance,
the main options are cutting costs, raising equity or selling assets.

Jones Lang LaSalle Hotels sold the 338-key Ana Hotel Xian, China in 2008
14 Hotel Investment Highlights · March 2009

Properties for sale

Americas

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sales are off market. Therefore, we encourage you to contact our operatives around the world.

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 Hotel Investment Highlights · March 2009 15

EMEA

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Ibis Portfolio Urbaclub Paris La Villette Mercure Royal Fontainebleau

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16 Hotel Investment Highlights · March 2009

EMEA, continued

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sales are off market. Therefore, we encourage you to contact our operatives around the world.

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 Hotel Investment Highlights · March 2009 17

Asia Pacific

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IHDWXUHVDXQLTXHXUEDQUHVRUWFRQFHSW +65 6494 3906
‡6WURQJH[LVWLQJFDVKIORZ mike.batchelor@ap.jll.com
‡7KHSURSHUW\FRPSULVHVJXHVWURRPVWKUHHIRRGDQGEHYHUDJHRXWOHWV Tom Oakden (Singapore)
VL[PHHWLQJURRPVDQGH[WHQVLYHUHFUHDWLRQDODPHQLWLHV +65 6494 3917
tom.oakden@ap.jll.com

Note: Jones Lang LaSalle Hotels’ public listings are shown here. However, this represents only a fraction of what is available. As we tailor hotel investment to individual needs, a number of our
sales are off market. Therefore, we encourage you to contact our operatives around the world.

Lizard Island Brisbane Marriott Surfers Paradise Marriott Resort & Spa
Tropical North Queensland, Australia Brisbane, Australia Gold Coast, Australia
18 Hotel Investment Highlights · March 2009

Jones Lang LaSalle Hotels’ research

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This concise newsletter identifies regional investment trends, hot
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FocusOn (Global and regional)

An in-depth look into significant topics of interest for the hotel
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Comprehensive market reports, specifically assessing the hotel
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