HVS reports that the total number of major and mid-market U.S. hotel transactions more than doubled in the first half of 2010. The rise is expected to continue to rise through the rest of the year, after a heavy fall in 2009.

Dallas, Texas, September 7, 2010: Hotel transactions activity in the U.S. rose from 29 sales in the first half of 2009 to 73 in the first half of 2010, according to the HVS 2010 Mid-Year Survey of Major and Mid-Market U.S. Hotel Transactions. The survey details confirmed hotel sales of $10 million and above (major) and hotel sales between $3.0 and $9.99 million (mid-market) that occurred in the first half of 2010.

A total of 9,521 hotel rooms traded hands in the major price category, totaling more than $1.6 billion in sales volume. In the mid-market price category, 3,116 rooms traded hands, totaling nearly $158 million in sales volume. These figures represent an increase in both total sales volume and rooms transacted for each category in the first six months of 2010 over 2009 levels.

“Given the improvements not only in the lending environment but also in market and hotel performance metrics, we expect transactions activity to continue to increase in 2010,” said Amy Beam, HVS Director of Hotel Transactions. “Luxury and upper-upscale hotels have noted marked gains in both occupancy and average rate in 2010 compared with last year, giving investors more confidence in the market for U.S. hotels.”

Highlights of the survey include:

• An overview of the hotel transactions market through June of 2010;
• An illustration of major and mid-market hotel transactions activity by month in the first half of 2010;
• A quarterly breakdown of transactions activity by price per room and total sales price;
• The five largest hotel transactions in each price category; and
• A listing of all confirmed hotel transactions as of July of 2010, including property name, location, buyer, seller, sale date, and selling price.

The trend in increase of transaction activities holds true as well in asset transactions $10 million and above (excluding note sales, recapitalizations, and foreclosures). According to a Jones Lang LaSalle Hotels’ proprietary database published in an artivle in July, the volume of U.S. hotel transactions for the first six months of 2010 eclipsed $2.2 billion, increasing 153% from the same period in 2009. Portfolio transactions increased in 2010 compared to 2009 and REITs accounted for 51% of hotel purchases by volume. JLLH forecasts the U.S. transaction volume to total between $4 and $4.5 bullion for 2010, up from its previous forecast of $3.5 billion.

This is positive news for the industry. However, both reports did not specify whether these increases in transactions volume are caused by U.S. investors or foreign investors. Are the transactions growth driven by confidence in investors at home, or are they propelled by the growing investing capital of foreign investors and foreign corporations who see investments in U.S. hotel real estate as opportunities for diversification and shelter from their less socially stable political environment at home?

For example, foreign investors have been shopping for investment properties throughout the west coast of United States. According to an article from SFGate.com, Sir Francis Drake Hotel in San Francisco was up for sale and there is strong likelihood that it will be bought by an investor from Asia. Domestic investors are cautious about where they put their money when foreign investors see opportunities in a U.S. real estate market that is currently so beat down. California has a national record high of hotel defaults in the past 2 years. With so many distressed properties in the greater Los Angeles and San Francisco Bay areas, change of ownership may prove necessary. This does not only apply to hotel properties, but other commercial real estate properties as well. In commercial real estate where supply in inelastic & kinked, default on so  many properties comes with no surprise. It will be a space market restructuring, on local-regional-national-global levels, for years to come.