$440m Essex House sale tops record year for hotels.

The $440 million sale of New York's Essex House Hotel was among the top single asset sales in a record breaking $21 billion year for the hotel market.

Jones Lang LaSalle Hotels reported that the transaction volume of hotels grew to more than $21 billion for the full year 2005, reaching a new all-time high, outpacing last year's record-breaking $12.9 billion by 63%.

The company reports 218 U.S. hotel transactions with a value of more than $10 million, representing an average price per key of $146,400 in 2005. The figures were compiled from Jones Lang LaSalle Hotels' comprehensive database.

The 2005 volume represents a new historic high, doubling the previous highs during the REIT boom years of 1997 and 1998.

"The appeal of hotels as an asset class and subsequent strength in capital market activity is due to a combination of factors: strong industry fundamentals, controlled levels of new supply, high availability of both debt and equity capital, favorable risk-adjusted returns, a lackluster stock market, and an overwhelmingly optimistic outlook for the lodging industry," said Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels.

"In addition, the number and diversity of buyers, including off-shore investors and an increasing interest by owners to bring properties to market has spurred activity."

Public companies were the largest net seller in 2005, having disposed of $8.5 billion in assets, representing 41% of all transactions.

Opportunity/private equity funds were the second largest seller, representing 34% of the total sales volume.

"The trend of public companies moving away from the business of real estate ownership, and moving their focus on hotel and brand management is prevalent in the U.S. as well as internationally," said Kristina Paider, director of marketing and research for Jones Lang LaSalle Hotels.

Of the biggest sellers in 2005, The Blackstone Group, CNL Hotels and Resorts, InterContinental Hotels Group, Hilton Hotels Corporation and Starwood Hotels and Resorts topped the list. Top buyers included The Blackstone Group, Columbia Sussex Corporation, DiamondRock Hospitality Company, LaSalle Hotel Properties and Sunstone Hotel Investors, Inc.

Portfolio transaction volume reached $9.6 billion in 2005, while single asset transactions totaled $11.4 billion.

Jones Lang LaSalle Hotels' research shows the prevalence of large single asset hotel transactions in 2004, with eight of the top 10 breaching $250 million.

Dubai Investment Group closed the largest with the acquisition of the 605-room Essex House for $440 million.

The transaction outpaced all others in both overall price and price per room at $727,273. "This value exemplifies the strength of the New York hotel market with an average occupancy of 83% and an ADR of $211.62," Adler said. Capitalization rates exhibited new historic lows in 2005. The average cap rate on 60 separate transactions on which Jones Lang LaSalle Hotels has cap rate data, representing $3.1 billion in deals, was 6% in 2004. This comprised a mix of encumbered and unencumbered assets.

The factors that led to last year's record volume will remain active in 2006 as hotels continue to provide an exceptional counter-cyclical position, good risk diversification by asset type, strong comparative returns and a steady annuity income stream.

"The expectation of further improving fundamentals and an increasing depth of capital will stimulate a similar level of transaction volume in 2006 and into 2007," said Adler.