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RCA February Hotel Month in Review

Monday, April 04, 2016

The February edition of RCA’s “U.S. Capital Trends” has risen a bit of a stir. One-month (-44.9 percent), three-month (-6.4 percent), six-month (-4.9 percent) and 12-month (-4 percent) moving averages are all down on a comparative basis, signaling a plateau in the trajectory of transaction volumes. A property-type-specific analysis is provided below.

RCA U.S> Capital Trends
It appears a dearth of large transactions are the root cause for the drop in velocity, given YTD deal volume is down 24.6 percent but entity/portfolio trades are down -32 percent and single-asset trades are down only -20 percent.

JPMorgan’s research team penned the following to its stock-trading clients this week, “Bottom line, the RCA data for February confirms what we’ve been thinking would unfold in the CRE sales market. The coming months and quarters will give us more color as to whether this stabilizes or worsens. But again, to keep this in perspective, we don’t find this drop in volume terribly alarming. The [competition] is tough and some pause should naturally be expected.”

With regards to pricing, despite volume being off, cap rates increased 1 basis point to 6.49 percent from January, but top quartile cap rates declined 4 basis points. In the top six markets (BOS, NYC, DC, CHI, SFO, LOS), top quartile cap rates are 146 basis points narrower than other markets, bouncing along an all-time high.

Velocity down. Prices flat. Markets (equity, sovereigns, corporates) have all recovered since February. Ten-year BBB down 59 basis points since YTD peak. I think this was a rough start to the year. Economic data has been very accommodative since.

About Jimmy Hinton

HFF Jimmy HintonMr. Hinton serves as Managing Director of HFF, responsible for the firm’s national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.

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