$23B in mega-deals lead to another record year for hospitality.

Year-to-date U.S. hotel transaction volume has exceeded $45 billion dollars, achieving record pace for the fourth consecutive year.

Half of that, or $23 billion, was generated by nine separate U.S. mega-deals--or portfolio deals valued at $600 million or more.

Having raised a significant amount of capital, major global private equity firms tended to favor larger more efficient transactions, making portfolio deals particularly attractive. In addition to that, until July of 2007, debt was plentiful and favorably priced, facilitating these transactions.

"However, the reduction in the amount of debt that securitized lenders are able to originate has led to the inability to fund larger transactions, as well as a "flight to quality," said Arthur Adler, CEO and managing director--Americas for Jones Lang LaSalle Hotels.

"Also, sponsorship has never been more important. As a result, mega-deals will require significantly more equity than in the past, making it more difficult for investors to achieve targeted return hurdles." The top three mega-deals made up for more than half of the $23 billion. The Lightstone Group acquired Extended Stay America for $8 billion, Morgan Stanley bought eight premier properties in the Luxury CNL hotel portfolio for $4 billion, and Ashford Hospitality purchased the CNL hotel portfolio for $2.4 billion.

"The debt markets will need to demonstrate increased liquidity if we are to expect a continuation of these mega-deals" said Kristina Paider, senior vice president of marketing and research for Jones Lang LaSalle Hotels.

"Investors have diverse opinions about the short term. Some perceive the short term as an opportunistic period with less competition, while others are on the sidelines with the belief that cap rates will expand and better buying opportunities will come in 2008. Flippers may decide to sell in '08 at a modest gain rather than holding for another few years. If this is the case, we could see an abundance of single asset sales in 2008."

The 15th edition of Jones Lang LaSalle Hotels' global Hotel Investor Sentiment Survey ("HISS") highlights investors' ongoing activity in the hotel sector.

"The short and medium range outlook for positive trading performances has contracted in the U.S., to 25.8% and 23.6% respectively. New York and San Francisco displayed the most positive short term outlook, with the highest percentage of investors expressing confidence in these markets over the next six months (70.2% and 61.8%, respectively).

"These high barrier-to-entry cities are top destinations witnessing record occupancy rates, boosted by foreign travelers taking advantage of the low U.S. dollar," said Paider.