Southern Hospitality: Investors bullish on DFW hotels

Occupancy still lags, but rates up, spurring trophy buys

Mansion on Turtle Creek Hotel (left)) and The Four Seasons in Las Colinas (Rosewood Hotels, Four Seasons)
Mansion on Turtle Creek Hotel (left)) and The Four Seasons in Las Colinas (Rosewood Hotels, Four Seasons)

Hotels were hit hard by the Covid-driven lockdowns and travel restrictions, but now a different, longer-term effect of the pandemic — inflation — is playing to the sector’s competitive advantage.

“Given the ability to adjust rates nightly, hotels are seen as one of the best inflation hedges in the commercial real estate space,” said John Bourret of Eastdil Secured, which handled the recent sale of the Mansion on Turtle Creek.

North Texas’ hotel industry has come back stronger than ever with the average daily room rates set to rise by more than 18 percent this year, the Dallas Morning News reports. As of August, average daily room rates in the Dallas-Fort Worth metroplex topped $115 a night, according to CBRE data.

Kevin Donahue of CBRE

“It’s mainly been a rate-focused recovery, although occupancies are lagging a little bit,” said Kevin Donahue, a valuation executive with CBRE.

The continued slump in convention and business travelers is tempering the rate-driven rebound, but that should bounce back by 2024, Donahue said, promising continued upside.

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While he admits higher interest rates have slowed many big transactions in the market, Donahue says hotel investors are still big on Dallas-Fort Worth.

Two of the region’s top-rated accommodations, the Four Seasons Resort and Club at Las Colinas and the Mansion on Turtle Creek Hotel, sold this year to investors with ambitious renovation plans. The Four Seasons in Las Colinas was purchased by investors Partners Group and Trinity Fund Advisors, while the Turtle Creek hotel was sold to local investor HN Capital Partners.

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“Coming out of COVID, and even more recently given the inflation concerns, investor appetite for exposure to hotels has definitely increased,” said Bourret.

Bouret said that the two recent trophy purchases were “evidence of the pricing power and value retention/growth in luxury hotel space,” and he’s expecting several more luxury hotel trades in the area.

— Maddy Sperling