Who will be the next big merger and acquisition in 2022?

The pandemic brought historically low occupancy, massive job loss, and hotel closures around the world. By September 2020, about six months after the World Health Organization claimed the coronavirus outbreak a pandemic, 34% of the hotels in New York City were delinquent. Many hotels closed their doors.

Hotel transactions in 2020

Owners were holding on or trying to avoid distressed sales as much as possible in 2020. Hotel transactions “fell off the cliff” after March 15, 2020, just like the hotel occupancy and the average daily rate did. Only six single-asset trades at $10 million or more were recorded in the second quarter of 2020, an 83% year-over-year decline. In the third and fourth quarters, such a trend continued at 80% and 75% year-over-year decline rates, respectively. A comparison between 2020 and 2019 shows:

Transaction volume: $5.3 billion vs. $17.7 billion (a decline of 70%)
Average sale price per key: $273,000 vs. $364,000 (a decline of 25%)

Growth through acquisitions

A person’s loss can be another’s gain. For example, an Embassy Suites in Manhattan was sold at a price 40% lower than what it was paid for 18 months earlier. The Waldorf Astoria in Chicago was traded for $54 million, or $250,000 per key. Through acquisitions between August 2020 and June 2021, Sonesta International Hotels reported a 350% increase in its managed hotel portfolio.

Mid-2021 was the turning point

Competition for deals began heating up in about mid-2021. New records for number of deals made and dollar amount were set in California, including the 59-room Alila Ventana Inn & Spa in Big Sur for more than $2.5 million per key.

More capitals were ready to be spent on hotel deals too. Investors had shown more confidence in 2021 after seeing a solid performance from the home-sharing/extended-stay sector and hotels in resort locations. Entering 2022, some expect it will be a better time to sell urban hotels.

Who will be the next?

There was also a big rumor about a possible merge between IHG and Accor to create the world’s largest hotel chain. Among other chains, Hyatt began selling its $1.5 billion worth of real estate in 2017. Many of these big players in the market have the cash flow for merger and acquisition deals. Which company will be your best bet?

Note: This viewpoint was first published in The Hospitality News Magazine in February 2022.

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