Offshore capital has been a key player in U.S. hotel transactions throughout 2017, accounting for 17 percent of total transaction activity and $2.9 billion in volume through the end of Q3.
“As the U.S. continues to garner substantial amounts of foreign capital, the global buyer landscape for hotels is evolving,” said Gilda Perez-Alvarado, Managing Director with JLL’s Hotels & Hospitality Group and head of the firm’s Global Hotels Desk. “We’ve seen a slight pullback in outbound capital from China and a noticeable increase in investment from Europe.”
U.S. hotels, long the bellwether of the broader commercial real estate market, are also holding investors’ attention in a relatively untapped geography this cycle: the Middle East, particularly investors from Saudi Arabia.
Spotlight on the Middle East
According to Perez-Alvarado, the U.S. continues to be a priority for Middle Eastern hotel investors, especially for those that already have exposure in the main Western European gateway markets. “The U.S. offers investors macro-economic stability, strong yields and abundant liquidity, as well as a diverse set of markets and property types,” explained Perez-Alvarado.
Within the U.S., New York is the primary target for Middle Eastern investors given its international recognition and status as a global gateway market. Coastal markets such as San Francisco and Los Angeles are also a focus.
“As investors from the Middle East become more comfortable with the U.S. market and look to diversify their portfolios, we’ll see them branch out into other markets,” said Perez-Alvarado. “Seeing a mix of buyer types with capital to deploy, including sovereign wealth funds, ultra-high net worth individuals and real estate investment trusts, gives us confidence that the U.S. will continue to garner steady investment from the Middle East.”
In 2016, U.S. hotel transaction volume totaled $29.1 billion, and offshore groups accounted for 43 percent of those transactions. Outbound capital from the Middle East totaled $2.1 billion last year, and it was projected to cross the $2 billion threshold again this year.
It remains to be seen how 2017 totals will shape out in terms of offshore investment, but the investment community is optimistic for what’s to come.
“Overall investor sentiment remains cautiously optimistic given where we are in the cycle, geopolitical pressures and investment priorities back home,” noted Perez-Alvarado.