RCA Insights

Manhattan Hotel Deals Dry Up: Is Worse to Come?

By 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.

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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

Also on RCA Insights:

US Commercial Property Prices Gain 7.0% YOY in January

Cross-Border Purchases of US Property Fall Below $50b

Chart: US Hotel Sector Volume and Pricing Trends

Jim Costello

Jim Costello

Senior Vice President
jcostello@rcanalytics.com

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.