Big bucks now chasing one-time wallflower.

The investment climate for the US lodging market has never been better, according to industry experts who've been tracking the explosive hotel sales volume of the past three years.

"If I owned a hotel and was considering a sale at some point in the near future, I'd have to think hard about putting it on the market right now. The stars are in alignment and we have a market that's as strong as it will ever be," said Tom McConnell, senior managing director of Cushman & Wakefield's hospitality group.

Indeed, the one-time wallflower among investors, hotels have witnessed an explosion in sales volume, with transactions quadrupling over the past three years.

McConnell just closed on the $74 million sale of the famed Algonquin Hotel on West 44th Street, which was swallowed up by Norwalk, CT-based HEI Hospitality. The company is in the midst of a buying binge powered by a $275 million equity fund it launched in 2004--a trend that began last year as investor appetite for hotels began to be whetted.

The popularity of the market right now helped brokers close the Algonquin deal in just 45 days, although the hotel's history played no small part in achieving the hefty price tag.

The Algonquin became famous in the 1920s as the meeting place of The Vicious Circle--or Algonquin Round Table--comprising literary worthies such as Dorothy Parker, Alexander Woollcott and Heywood Broun.

According to McConnell--who along with Paul Fitzpatrick represented owner, Miller Global Properties, in the sale--that little extra "panache" didn't harm the final sale price. "The great history that goes with the Algonquin is a very tangible thing," he said.

The 174-room hotel--which Miller bought for around $40 million in 2001 and then renovated --attracted the attention of several large REITs, as well as private hotel companies and international hotel firms.

According to McConnell, the sale of the famed hotel--which HEI will continue to operate as a lodging--is well within Miller Global's strategy of short-term hold on its properties.

Contributors to the company's fund are driven by Internal Rate of Return and expect a three to five year turnover. "This sale is well within that horizon," said McConnell.

"They took advantage of an up hotel market right now, and I think it is a good sale for both sides."

While the sale may be bite-sized compared to some of the recent mega Manhattan deals, such as the $675 million Plaza sale and the $600 million deal on the Essex House, it is indicative of the dramatic turn in the hotel market's fortunes since the recession of the late 90s.

As of June 2005, Jones Lang LaSalle Hotels forecasts full year transaction volume to reach near $15 billion--a 16% increase over the previous record-breaking level of $12.9 billion achieved in 2004.

The appeal of hotels as an asset class and subsequent strength in capital market activity is due to a combination of factors, according to Arthur Adler, managing director for Jones Lang LaSalle Hotels.

The strong economic and lodging industry recovery picture, low interest rates and a highly competitive debt market, that has resulted in dramatically improving spreads, the number and diversity of buyers and an increasing interest by owners to bring properties to market, have all helped create the current climate.

With large, private equity funds raising real estate opportunity funds of $5-$10 billion, prices are also being driven upwards as REITs and institutional investors actively pursue hotels as an asset class.

Indeed, large portfolio deals have dominated the market so far this year--the Marriot International/CTF Holdings deal involved the sale of 27 hotels for an aggregate $4.9 billion and Blackstone is expected to close its deal to buy Wyndham International for $3.2 billion in the fourth quarter.

Jones Lang LaSalle Hotels anticipates the public hotel companies will return to dominate the seller landscape in the latter part of 2005, citing the May announcement that Hilton intended to dispose of $800 million in non-strategic assets this year and Starwood's plan to sell off $500 million in properties.

But single asset sales also show no signs of slowing. Companies such as HEI and Highgate have made no secret of the fact that they are actively seeking properties, the latter having already snapped up the Park Central, Chinatown's Holiday Inn, the Summit on Lexington and the Eighth Avenue Howard Johnson.

The East Side Marriot, which is currently being marketed by hotel brokerage Hodges Ward Elliot, is expected to generate a flurry of activity among bidders over the coming months.

Said McConnell, "None of the warning sings in this market are flashing. Right now, we're getting a green signal on everything in the hotel market. Supply is diminishing due to condo conversions and the demand is raging from every sector.

"This fall will likely be one of strongest in New York since 1998."