Fitch: Overseas Demand for Hotels A Credit Positive For Sector

Strong overseas institutional demand for real estate assets will lead to additional sales by lodging C-Corps in 2014 ???" a credit positive for the sector given the greater stability and lower capital intensity of franchise and management fees versus hotel ownership economics, Fitch says.

Demand for hotel assets from sovereign wealth funds and other foreign investors is helping lodging C-Corps advance their asset disposition strategies as part of the 'asset light' business models, according to Fitch.

Demand from foreign investors should help lodging C-corps obtain maximum pricing for these assets by expanding the pool of potential buyers, which also includes REITs, private equity funds and domestic high net worth investors. In addition, foreign investors have historically placed an added premium on qualitative aspects, such as asset status within a given market and country stability. This has enabled them to outbid purely 'economic' buyers for hotel assets in key global gateway cities, such as New York and London.

On Jan. 22, Starwood Hotels & Resorts (Fitch: 'BBB') announced the sale of its St. Regis Bal Harbour Resort in Miami. La Rayyan Tourism Investment Company, the international hospitality subsidiary of Al Faisal Holding Company, one of Qatar's largest private diversified industry groups, purchased the asset for $213 million, representing an attractive $1 million per room. Starwood negotiated a long-term management contract as part of the sale.

Starwood's sale comes on the heels of Marriott International's Jan. 7 announced sale of its London EDITION and signed binding letters of contract to sell two company-owned EDITION hotels under development in Miami and Manhattan to companies ultimately owned by the Abu Dhabi Investment Authority. The total sales price was $815 million and, like Starwood, Marriott negotiated long-term management agreements as part of the sale.

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