We had our best year ever in 2015, we now expect an increase in prices and more new construction - by Earle Wason

Earle Wason, Wason Associates Hospitality

This spring we can continue to acknowledge that the hotel business is alive and well in New England and the preview of the upcoming spring, summer and fall seasons is for continued growth in both average daily rate and occupancy in most all markets throughout New England. One of my clients has told me his company has received the highest level of advance deposits ever, obviously a good indicator. It also continues to be a good time to be a buyer or seller but herein lies one of the problems we are facing as brokers. The transaction market has been very good now for the past two years. We had our best year ever in 2015, and we are beginning the year with some very good transactions, now though, the inventory of good product, especially in the mid-market segment is diminishing. We now expect an increase in prices and more new construction. It is the continuation of a strong business cycle and at this point we normally see a lot of new construction and that seems to be the case. Because of this the older hotels will likely struggle to maintain market share.

A current trend for 2016 and beyond is the increase of owner operator motels and resorts for sale. After many years of ownership owners feel it is time to sell and we have a number of properties for sale that meet these parameters. Sales in the owner operator market have been much more difficult in recent years and we are not quite sure why. Assumptions made have centered around the strong demand for new franchise hotels, and the need for the owner to work extended hours. But I do think that one big aspect has been the use of home equity loans for other purposes thus reducing the amount of available cash for motel and inn purchases. It appears that there will be more transactions this year of this nature. Long term holders of owner operator properties deciding it is time to retire will continue to fuel this market.

Financing is readily available and in fact lenders who had opted out of financing hospitality properties are again looking for loans. The SBA 504 program continues to be a very popular form of financing. The SBA 504 is designed such that a lender provides 50% of the sales in a first mortgage and the SBA sells a bond to finance either the remaining 30% or 35%. The advantage is that the SBA portion is fixed for 20 years and amortized over 20 years. The government insures the loan but I have been involved in numerous 504 loans over the years and none that I have been involved in have defaulted.

Some further issues and trends to consider:

As predicted in last year’s Spring Preview: there will be a continued interest in high quality boutique hotels, especially in markets with high barriers to entry. One prime example from 2015 was our transaction of the Concord Colonial Inn on the Square in Concord, Mass. This historic property was built nearly 300 years ago but is considered one of Mass. classic boutique inns. The inn boasts two of the area’s premier dining establishments along with 46 guest rooms, 10 suites and a five bedroom home. The selling price was $12.1 million and the buyer has reported continue growth in all aspects of the operation.

Also predicted in 2015 and true to form; the supply of available hotels for sale will probably not keep up with buyer demand and therefore prices will increase and new construction will increase further. The high price for the recent sale of the Best Western Plus Hotel Tria in Cambridge is a prime example, as well as the numerous hotels in the pipeline for the Boston market area.

Expect the lower capitalization rates that have been in place for the past couple of years to continue.

There will be further consolidation of ownership as regional companies continue to expand.

I am looking forward to another successful year and my best wishes for a busy and healthy 2016 to all my hotel owner friends throughout New England.

Earle Wason, CCIM, is president and owner of Wason Associates Hospitality Real Estate Brokerage Group, Portsmouth, NH.