JLL chief: Smart money is on hotel development
23 MAY 2014 6:21 AM
Savvy investors are looking to new development as recovery roars on throughout much of the world, said JLL’s Mark Wynne Smith during the Arabian Hotel Investment Conference.
DUBAI, United Arab Emirates—Smart money in the hotel space is going into new development, according to Mark Wynne Smith, global CEO of JLL’s hotels and hospitality group.
There is now as much capital funding new development as there is on transactions, he added.
“This has been a very fast change. It’s going to carry on getting bigger and bigger,” he said during a panel titled “Smart capital” at the recent Arabian Hotel Investment Conference.
“We always talk as a firm about how much liquidity there is in the transaction and financing space. In the meantime, the (development) cycle has picked up again,” Wynne Smith added.
Most of this development is occurring in major metropolitans. The total value of projects under construction in 16 major global cities is estimated at $58 billion, with $15 billion in development in New York, $10 billion in London and $2.5 billion in Dubai.
“The world is becoming increasingly more about cities and less about countries,” Wynne Smith said.
More than half of all capital investment is concentrated in the top 16 global markets, according to JLL data, which include, among others, New York, London, Hong Kong, Tokyo and Paris.
“This is a trend which is so firmly in place. ... The core investors are going to carry on putting more money into these core cities … (rather) than going into certain emerging markets,” Wynne Smith said.
On the transaction front, the investor pool comprises private equity funds and institutional players—the latter group consisting of many new entrants to the hotel sector, he said.
He also noted a contingent of hotel operators that, after emerging from the past five years as net sellers, are back on the market to add quality or value-add assets back on their balance sheets.
From a regional perspective, investors from Asia likely will be active. “China probably will spend about $15 billion to $20 billion this year on real estate around the world,” he said.
Japan also is picking up as banks finally unload distress from their balance sheets, Wynne Smith added.
Middle Eastern sovereign wealth funds will continue to execute on deals as well.
Two investor pools that might surprise, Wynne Smith said, are from Eastern Europe looking to invest in London as well as investors from South America looking to the United States to ensure control of their capital amid political volatility in their home markets.
Europe in general will see investment activity pick up along with recovery in the broader macroeconomic climate.
“There is a lot of excitement about European hospitality currently,” he said. “One of the key underwriting facets here is the fact that debt market is back. It was gone for a very long time. We’re now seeing a very different picture from what we experienced before where we have core banks willing to lend again.”
In the Americas, select service is the name of the game because investors are looking to avoid the overhead and hassle associated with larger workforces, Wynne Smith said. The commercial-mortgage-backed-securities market is more than happy to oblige as it continues its return from the dead during the depths of the recession.