Select-service hotels a growing sweet spot for investment

Hybrid lodging class offers low operating costs, sizable returns
October 07, 2014 03:00PM

Select-service hotels, a lodging class located somewhere between full-service and limited-service spots, are a growing area of interest for some of the country’s largest real estate investment trusts and private equity firms, according to a report from commercial brokerage JLL.

Such hotels have drawn a growing amount of cash from large national banks and life insurance companies, boosting a sector long the domain of local and regional banks, according to the report, cited by the New York Observer.

“As institutional investors continue to increase their focus on acquiring select-service hotel portfolios, everything about this lodging industry segment has gotten bigger, including transaction size and commensurately, lenders’ appetite for financing these assets,” Bill Grice, executive vice president on JLL’s hotel investment banking team, said in the report.

Select-service hotels are particularly appealing to investors because the segment has lower operating costs that are typically also easier to control, Grice told the New York Observer. For banks and insurance companies, those lower overheads mean lending on multiple establishments with strong net incomes will provide greater income stability.

“Select-service hotels often achieve net operating income margins north of 30 percent, a level that is attractive to almost any real estate investor,” Grice noted in the report. [NYO]Julie Strickland