By Jim Costello on March 3rd, 2020
The Manhattan hotel market got off to a bad start in January 2020: there were no deals. This market, which is by far the largest in the U.S. on an annual basis, will see a month of no activity from time to time because the market is not liquid enough to supply a constant flow of deals. Still, zero deals in January follows November and December with no sales either.
Three months of no transactions is a rare event in Manhattan. Is something worse yet to come?
Defaults on loans for existing and planned hotels in Manhattan’s Times Square have been rising at such a rate that the mainstream business press has paid attention. Hotel construction had been growing at an accelerating pace through early 2019 and challenges to performance from this increase in supply, plus disruptive competition from the likes of Airbnb, have come to roost. To be clear, Times Square is not all of New York let alone the U.S. Still, when there is trouble at this high-profile locale people take notice.
Nationally, hotel deal volume fell 44% in January, dragged down by Manhattan’s slump. However, had Manhattan been flat, transaction volume would still be down at a double-digit rate from January 2019.
The challenges for Manhattan would be bad enough without the looming threat from the COVID-19 crisis. Fears of the disease are limiting travel and tourism, potentially adding fuel to the fire for the hotel market nationally.
Even before the news of COVID-19 broke, the price component of the FTSE Nareit Equity Lodging/Resorts index fell by double digits in both January and February. Will March bring further declines? Regardless, the pricing of individual hotel assets is already falling off, with the RCA CPPI for these properties slipping in January from a year earlier. If these private market prices follow the public prices, the deal market is likely to get worse before it recovers.
Alexis Maltin and Mike Savino contributed data analysis for this article.
A version of this article first appeared in US Capital Trends, published February 26. If you are interested in learning more about RCA publications, contact us.
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