In yet another example of a healthy Puget Sound hotel market, Boston-based AEW Capital Management sold the The Hilton Seattle, located downtown at 1301 Sixth Avenue, to New York City-based Westbrook Partners last Thursday for $60.3 million, or $252,301 per room, public records show.
AEW purchased the property in October 2012 for $63 million, according to sources familiar with the transaction, which at the time included a parking garage adjacent to the property. AEW sold the garage separately to Connecticut-based Cornerstone Real Estate Advisors for just under $45.4 million in 2015, keeping the hotel building in its portfolio until the sale last week. Combined, AEW made a nearly $42.7 million gross profit in just four years of ownership.
“That’s a very good return,” said Alan Reay, the president of Irvine-based Atlas Hospitality Group, a firm specializing in the sale of hotels and hospitality properties. “2015 was a record year in terms of hotel sales transactions. We saw a huge drop off in the first quarter, and that in large part was due to the fact that financing through commercial mortgage-backed securities tightened up a little bit.”
Seattle is definitely a very hot market for hotel investors, just because of the economic fundamentals of the city
Reay added that the stock market also contributed to the initial decline in hotel sales at the beginning of the year with hotel REIT stocks down anywhere from 40 to 60 percent from their peak in 2015. The second quarter has seen an increase in activity, however, he added. “There was definitely a slowdown (during the first quarter) in larger transactions, such as The Hilton,” said Reay. “The people that have stepped into that void of private equity companies are overseas investors.”
Chinese investors are some of those overseas that are showing interest in the Seattle area, says Reay. “Seattle is definitely a very hot market for hotel investors, just because of the economic fundamentals of the city,” said Reay. “The Seattle market is very attractive.”
So far, there have been five significant hotel transactions in the Puget Sound region this year, according to Kidder Mathews’ 2016 second quarter Seattle Hotel report. The largest of these transactions was the Marriott Hotel in Bellevue in January for $175 million, or $455,729 per room. Another record sale in January was Hotel 1000, a luxury hotel in downtown Seattle with 120 rooms, which sold for $83.5 million, or $695,833 per room. This was the highest price per room ever recorded in this market.
As well as hitting record sales, hotels in downtown Seattle are well into their fifth year of record occupancy with the upscale tier expected to record an average occupancy rate of 84 percent in 2016, says Kidder Mathews’ report. Ultimately, the supply of guest rooms will expand beyond the available demand, leading to lower occupancy rates and stagnant or declining room prices. However, the pending decrease in occupancy should not be confused with a softening of demand. The volume of occupied room nights has increased steadily since the recession, a trend the brokerage expects will continue over the next several years, increasing demand for additional inventory. The question is not whether some new hotels should be built, but the pace at which they will be absorbed, concluded the report.