Private equity firms outpace REITs in U.S. hotel market

Over the past decade, private equity groups have been the top hotel acquirers in the U.S.
September 06, 2013 11:20AM

From left: Blackstone’s Stephen Schwarzman and Starwood’s Barry Sternlicht

From the New York site: Blackstone Group, Starwood Capital and Apollo Global Management are just a few of the private equity firms reigning over the hotel market in the U.S., due in part to their buying power and risk tolerance.

Private equity firms surpassed real estate investment trusts as the top hotel acquirer in the past decade. REITs went from owning 67 percent of hotel rooms in 2003, to now owning 33 percent. In contrast, private equity firms owned 12 percent in 2003, but now own 59 percent – at a time when supply is at a historic low. Annual hotel room supply dropped from 0.5 percent in 2011 to 0.2 percent last year. The long-term average supply is 2 percent.

The firms, which account for a buyer share of 39 percent, “tend to acquire assets that have value-add opportunities and show promise for upside potential,” Lauro Ferroni, director of hotels research at Jones Lang LaSalle, told Forbes. “They can come in and identify underutilized space, like a rooftop or a shuttered meeting room, that isn’t maximized to its full potential and turn it into a money-making [restaurant].”

They also take a hands-on approach to running hotels, by changing management and making large investments in renovations. [Forbes]Mark Maurer