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Due to constricted business travel during the 4th of July, the U.S. hotel performance had a weak start to Q3 2023. Thereafter, the U.S. hotel performance stayed pretty much stable. However, the national hotel performance gathered momentum in mid-September due to an increase in business and leisure travel.

Occupancy was reported at 69.9% at the start of Q3 2023, which decreased to 66.70% at the end of Q3 2023. ADR was $156.27 at the beginning of Q3 2023, which increased slightly to $157.89 at the end of Q3 2023. RevPAR was $109.18 at the start of Q3 2023, which decreased to $105.31 at the end of Q3 2023. (Source: STR)

Analytical Summary

Significant Q3 2023 transactions (By Sale Price) 

1.  Hotel Name: Park Lane Hotel Location: New York City, NY No. of rooms: 610 Sale Price: $622,897,705 Price per unit: $1,021,144 per unit Seller:  JV Witkoff Group & Mubadala Investment Co. & New Valley Realty & Highgate & Greenland Group Buyer: Qatar Investment Authority
2.  Hotel Name: Hampton Inn & Home2 Suites by Hilton New York Times Square Location: New York City, NY No. of rooms: 646 Sale Price: $290,000,000 Price per unit: $448,916 per unit  Seller: McSam Hotel Group               Buyer: Dauntless Capital Partners
3.  Hotel Name: Motto By Hilton New York City Times Square Location: New York City, NY No. of rooms: 400 Sale Price: $170,000,000 Price per unit: $425,000 per unit Seller: McSam Hotel Group Buyer: Magna Hospitality Group
4.  Hotel Name: DoubleTree Resort by Hilton Hotel Paradise Valley – Scottsdale Location: Scottsdale, AZ No. of rooms: 378 Sale Price: $115,500,000 Price per unit: $305,556 per unit Seller: Southwest Value Partners Buyer: Global Hospitality Investment Group

Source: GlobeSt.com/LW Hospitality Advisors

Q3 2023 Cap Rates 

Average cap rates for U.S. hotels decreased by four basis points in Q3 2023 as compared to Q2 2023. The following table illustrates minimum, maximum, and average cap rates for U.S. hotels in Q3 2023 & Q2 2023.

Source: RealtyRates.com

Outlook

Labor shortages, rising cost of debt, continued supply chain constraints, and increased inflation of operating costs are challenging the U.S. lodging sector. In addition to the need to replenish FF&E reserve accounts, many owners are being forced to execute deferred capital expenditure refurbishments to comply with brand-mandated property improvement plans (PIP). On the flip side, the nation’s net lodging supply growth remains well below the long-term average. Although credit markets are volatile, there is no shortage of available financing for hotel assets as institutional and private investment funds are backfilling a void left by banks. Knowledgeable sector investors who understand market dynamics and can leverage relationships with multiple types of capital partners can secure investment funds regardless of market conditions in the upcoming 2-3 quarters.

The business outlook for US hotels remains strong for the remainder of 2023, thanks to an uptick in business travel and a healthy preference among business and leisure travelers to stay in hotels. As per a survey commissioned by the American Hotel & Lodging Association (AHLA), 68% of Americans whose jobs involve travel said they were likely to travel overnight for business during the last three months of 2023, up from 59% in 2022. Hotels are the top lodging choice for 81% of business travelers surveyed.