HVS's Rushmore says today is the time to buy and 2012 will be the time to sell.

Amid all the backslapping and proclamations that good times are back, or at least just around the corner, a nagging unanswered question wafted through this week’s New York University International Hospitality Industry Investment Conference: Why hasn’t the long-predicted torrent of hotel transactions begun yet?

While Jones Lang LaSalle Hotels research and anecdotal evidence point to an increase in activity and interest in dealmaking, there still are a lot of hotel assets that should be ripe for acquisition, either because they’re in some stage of distress or because owners have reached the end of their planned holds. Add to that the common wisdom that hundreds of millions (perhaps billions) of dollars of private equity money is poised to purchase bargain-priced hotels and you have an environment seemingly perfect for lots of buying and selling.

Until just a few months ago, a lack of financing, plus unrealistic value expectations by owners, plus anemic operating fundamentals of the business prevented few transactions from happening. There were only 44 major hotel transactions last year, according to HVS, compared to a peak of 279 in 2005. Through April, there have been 21 sales of major assets.

Lenders seemed to be content to sit tight instead of pressuring troubled hotels into sale or foreclosure. But suddenly, things have changed. Starting in February, hotel demand and occupancy have risen sharply, and most analysts believe 2010 will be better than originally expected, and 2011 and ’12 will be gangbusters. At the NYU Conference, STR’s Mark Lomanno reported that through April, U.S. hotel demand was up 5.7 percent and occupancy climbed 3.0 percent. Rates are still a problem, down 3.4 percent for the year.

Also, it appears commercial lenders are getting back into the game. One lender, Lonny Henry of JP Morgan Securities, said, “We’re beginning to see a financing market for the hotel industry, something most people thought was impossible as recently as the beginning of the year.” The difference, he says, is the upturn in hotel industry performance. “Without confidence in the outlook for the industry, there were very few transactions. Performance just turned positive in February so now lenders have confidence.”

And while the stage seems set for that rush of transactions we’ve expected, there still seems to be reluctance by many owners to pull the trigger. But instead of a grim outlook for the industry, it’s improving performance that may be putting the brakes on a flurry of deals. The new mantra, as offered by HVS founder Steve Rushmore, is in effect don’t sell now because values will be higher next year and maybe higher yet in 2012 and ‘13. According to a presentation he gave to the conference, hotel valuations will be flat this year (after falling 31 percent in 2009), but will gain 21 percent next year, 23 percent in 2012 and 24 percent in 2013.

“Today’s is the best buying opportunity since 1991,” he said, although not many deals will happen. “Now is the time to buy and 2012 will be the time to sell. As a result, transaction volume will be low this year but will pick up significantly in 2011 and 2012.”

Optimism or Naiveté?
Many of the NYU speakers were optimistic about the near-term outlook for the industry. Some, like Arne Sorenson of Marriott, are “wildly optimistic,” especially for the hard-hit luxury and upper upscale segments of the business. In the middle part of the lodging spectrum, President David Kong said Best Western has seen “double-digit increases” in reservations activity. “We see a strong summer ahead for our members,” he told a general session audience.

Some leaders were more guarded in their forecasts, aware that the hotel industry isn’t in full control of its destiny. While, on the bright side STR says new supply growth will slow to a trickle (1.9 percent this year, .06 percent in 2011 and .03 percent in ’12), it’s the state of the U.S. and world economies that will mostly determine the fate of the industry in the coming years. As Mark Hoplamazian, president and CEO of Hyatt, said, “It feels like the very, very early stages of a recovery but the big questions remain jobs and housing prices.”

Deals, Deals, Deals
Historically, hotel companies use the NYU Conference as a platform to announce acquisitions, line extensions, new products or other corporate developments. In 2009, nary a press release appeared during the conference. This year, however, seemed more like old times and may be another harbinger of a recovering hotel industry. Several major deals were announced, either at the conference or just before the event:

• Barry Sternlicht’s Starwood Capital Group bought a 49.9-percent stake in Hersha Hospitality Management. Hersha will use Starwood’s capital-raising capabilities to grow its third-party management portfolio from the current 70 properties.

• Geolo Capital, an investment firm controlled by John Pritzker, bought a majority stake in Joie de Vivre Hospitality, the industry’s second-largest boutique hotel firm. With Pritzker’s money, California-based JdV intends to take its quirky boutique concept nationwide. Founder Chip Conley will stay on as CEO.

• Wyndham Hotels will pay $43 million to buy the Tryp hotel brand from Sol Melia. The 91 properties in the chain will become Wyndham licensees. Tryp is a select-service brand with hotels in Europe and South America.

• Hyatt signed management agreements for three new Andaz properties. The luxury lifestyle hotels will be in Sanya Sunny Bay, China; Delhi, India; and Providenciales, Turks and Caicos. With these signings, the chain has 11 properties open or under development in six countries.