All Forum Posts by: Manuel Angeles

Recent office sales activity in Greater Los Angeles remains restrained. The fourth quarter witnessed $802 million worth of office properties transact, well under the $1.7 billion worth of office sales that traded quarterly, on average, during the past decade in the metro.

Acute market weakness in most segments of the local office market, combined with long-term questions around the future trajectory for space use, have dented investor interest in office properties in the metro. Several recent sales have garnered lower pricing than previous transaction prices.

In November, Montana Avenue Capital Partners purchased 1700 E Walnut from CBRE Investment Management for $31.17 million ($260/SF). The sale included a six-story, 400-parking-space garage. The property was around 60% leased at the time of purchase. CBRE Investment management is selling the asset for a 35% loss, having purchased the property in June 2017 for $48.5 million ($405/SF). It bought the property from JV partners Montana Avenue Capital Partners and The Roxborough Group. Montana is purchasing the asset for less than it acquired the property for in October 2015, having paid $33.5 million ($280/SF).

In December, a private family office purchased 400 and 450 Brand Blvd. from Kennedy Wilson for $58 million ($130/SF). The two buildings comprised 440,700 SF, with 364,700 SF of office space and 76,700 SF of retail space. The buildings were 61% leased, and the property was marketed as a value-add opportunity. Existing tenants had a weighted average remaining lease term of 5.5 years. Significant tenants include 24-Hour Fitness, Cigna, and Regus. No loan was recorded at the time of sale, making it likely the buyer paid all cash.

The transaction represents a 60% loss for Kennedy Wilson, having acquired the buildings in May 2017 for $144 million ($325/SF). It also sold well below its previous sale price in January 2004 for $117 million ($265/SF). The sale indicates a trend in L.A. and nationally of private, opportunistic buyers becoming increasingly active in acquiring office properties, while larger, more institutional investors are divesting of office assets.

Substantiating the trend, during 2023, private buyers were behind 60% of all transaction activity on a dollar basis. From 2015 to 2019, the five years preceding the pandemic, private buyers represented, on average, around 45% of buyer activity. In contrast, institutional buyers were behind 10% of dollar volumes in 2023. From 2015 to 2019, they were behind around a quarter of activity.

The most prominent news around market distress centers on Downtown Los Angeles. In 2023, Brookfield Properties, the largest landlord in Downtown Los Angeles, defaulted on 777 Tower, Ernst & Young Plaza, and Gas Company Tower. Ernst & Young Plaza went into receivership in May, and Gas Company Tower went into receivership in April. 777 Tower is currently on the market.

In July, Gas Company Tower was appraised at $270 million, around 40% of its last valuation of $632 million in 2021. The value is also well below the $465 million in loans Brookfield has on the property. In December, Ernst & Young Plaza was appraised at $210.7 Million, less than half its valuation of $446 million three years ago. As loans come due on other office properties in the L.A. metro, additional landlords will likely default.

Most future office sales will likely garner a discount in pricing to what was likely possible before early 2020. However, a handful of recent sales demonstrate some investors are willing to pay top-dollar for select properties.

The largest 2023 office sale in Santa Monica, as well as the L.A. metro, closed in August, when J.P. Morgan Asset Management purchased from CalSTRS the Pen Factory, a 220,000-SF building at 2701 Olympic Blvd., for $178 million ($810/SF). The property is fully leased to video game publisher Activision Blizzard and healthcare company GoodRx Holdings, which have headquarters in the office building. J.P. Morgan financed the acquisition with a $97.9 million loan (55% loan to value) from PCCP.

The strong price achieved was driven by the asset being a creative office conversion that finished in 2017 (latest generation space), was 100% leased, and was in a favorable location in Santa Monica, historically one of L.A.'s most sought-after office locations. Properties with all three attributes represent a small portion of L.A.'s office market.

Looking forward, average market pricing is expected to continue to decline at least through 2024. Market pricing is forecast to experience a peak-to-trough decline of around 30% by 2025. The market faces numerous headwinds. Vacancy is expected to continue to reach new heights during the next several years, and asking rents are expected to witness declines. Uncertainty around the long-term trajectory for office space use due to the increased use of hybrid work strategies persists. Additionally, as interest rates are anticipated to remain elevated for at least the near term, debt will likely remain more costly.

Here are several graphs illustrating the current office market in Los Angeles County:

Full Los Angeles County Commercial Office Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183593/Los_Angeles_-_CA_-USA-Office-Capital_Market-2024-01-15_compressed.pdf

0 Votes

Los Angeles County, California

Greetings,

Here is an update on the current Commercial Industrial Real Estate Market in Los Angeles County:

Los Angeles Industrial has been an attractive asset type for institutional investors and public REITs for over a decade, as private owners, many of whom are entering retirement years, have been divesting. Sales volume has remained strong relative to the nation despite the rise in interest rates, both due to local policy changes and distress. The ULA transfer tax implemented in the city of L.A. raised transaction costs at the start of April, leading many investors to streamline sales that might have otherwise closed in 23Q2. For example, one of many trades that closed on the final days of 22Q1 is GI Partners' acquisition of DirectTV's two-property, 210,000-SF facility in Los Angeles for $210 million ($1,000/SF), which contained data center facilities. The deed was filed with the county on the last day of March.

Sales volume totaled $5.2 billion in 2023, with another jolt in activity in 23Q3, this time driven by owner-user sales of companies that are facing financial challenges and could use the capital to increase liquidity. For example, in August, locally based 99 Cents Only Stores sold their 800,000-SF distribution building to Dart Warehouse Corporation for $190 million ($237/SF) in a sale-leaseback deal. The previous month, Yellow sold a 9.8-acre truck terminal, which included a 38,000-SF industrial building, for $80 million.

Price discovery is underway after years of outsized rent growth paired with low interest rates drove robust appreciation. The market price has averaged 11.5% annual growth over the past five years and long-term holds continue to reflect these gains. For example, Rexford Industrial REIT acquired a 608,000-SF distribution center in Santa Fe Springs for $210 million ($345/SF) in July 2023. Fully leased with GXO Logistics as the primary tenant, the property traded at a 5% cap rate. The seller, DWS Group, purchased the property in July 2015 for $62.25 million, representing an annual appreciation return of 16.4%. Rexford was attracted to the property for its mark-to-market opportunity.

At the same time, nearly all sales of properties valued over $5 million have sold for prices above their respective purchase price, including short-term holds. But some sellers are making concessions. For example, owner-user Sunset Olive Oil was asking for $21.5 million for a 31,200-SF warehouse in Pico Rivera that they originally acquired in August 2020 for $8.7 million. CapRock Partners, with plans to renovate and reposition the asset, was able to negotiate the price down to $19.2 million ($615/SF) when it sold in June 2023.

The premium for new construction is high due to its scarcity in the market. As an example, BeBella, an owner-user, recently acquired a 92,800-SF warehouse in Santa Fe Springs from Panattoni Development for $53.6 million ($578/SF) in September 2023. The market price for logistics properties in the Santa Fe Springs/La Mirada submarket at the time of sale was $314/SF.

Cap rates have been rising from a trough in 22Q1. At that time, trades that resemble Rexford Industrial REIT 608,000-SF distribution center in Santa Fe Springs that traded for a 5% cap rate were trading in the 3.5% to 4% range. The impact of the steep increase in interest rates is expected to continue to affect pricing in the short term. In the Base Case scenario, cap rates continue to march higher over the next four to eight quarters, placing downward pressure on prices.

Here are several graphs illustrating the current industrial market in Los Angeles County:

Full Los Angeles County Commercial Industrial Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183592/Los_Angeles_-_CA_-USA-Industrial-Capital_Market-2024-01-15_compressed.pdf

0 Votes

Los Angeles County, California

Greetings,

Here is an update on the current Commercial Hospitality Real Estate Market in Los Angeles County:

In 2023, only four of approximately 30 hotel transactions in the Los Angeles market were above $20 million, three of which occurred in the third quarter. In April, a new transfer tax on residential and commercial real property went into effect, potentially impacting hotel values. Since the transfer tax took effect, only four hotels have traded in the city of Los Angeles. Three are slated for conversion and were exempt from the "Mansion Tax", and the other sold for less than $3 million. The "Mansion Tax," officially the "Homelessness and Housing Solutions Tax," means that if a sale amount exceeds $10 million, it will be subject to an additional tax rate of 5.5%.

The new tax law, higher interest rates, increased housekeeping wages, and the largest union strike in history in SoCal have impacted investment activity in the market. Additionally, investors and developers could have been hesitant to move forward on hotel investment in the city of Los Angeles due to the "Responsible Hotel Ordinance" being on the March 2024 ballot, which would have required hotels to allow the city's homeless agencies to send individuals or families to empty hotel rooms. The measure was withdrawn in December and will not be on the ballot. LA City Council approved a compromise ordinance impacting developers more than owners.

Other hotels outside the city limits of Los Angeles have traded since April; however, investment activity is still muted, and most of the hotels that sold in 2023 were Economy class hotels or part of larger national portfolio transactions. This is in line with the national commercial real estate investment slowdown. In the past 12 months, hotel sales volume was approximately $383 million. Apart from 2020, the annual hotel investment volume has exceeded $1 billion each year since 2014.

The high-priced tax-exempt transaction included hotels slated for conversion. In September, the Housing Authority of the City of Los Angeles sold the 133-room Extended Stay America LAX Airport to American Family Housing, Inc. for $50.7 million, or $381,120/key.

In August, ICO Investment Group sold the 294-room Mayfair Hotel to the City of Los Angeles for $60.3 million, or $204,923/key. The previous owner purchased the hotel in 2012 for an undisclosed price. The city of Los Angeles plans to convert the hotel as part of the Inside Safe initiative, which is a housing-focused solution to combating homelessness. The city plans to complete renovations for approximately $19 million and spend roughly $4 million toward project oversight, resulting in an estimated total spend of $83 million. The city hopes to reopen the Mayfair in February.

Still, hotel investment activity could shift, and more discounted or distressed deals could transpire due to CMBS debt maturing in approximately 50 hotels in the next two years.

Here are several graphs illustrating the current hospitality market in Los Angeles County:

Full Los Angeles County Commercial Hospitality Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183591/Los_Angeles_-_CA_-USA-Hospitality-Capital_Market-2024-01-15_compressed.pdf

0 Votes

Los Angeles County, California

Greetings,

Here is an update on the current National Commercial Multifamily Real Estate Market in The United States of America:

Multifamily investment activity dipped below $100 billion in 2023 for the first time since 2014. After peaking in the second quarter of 2022 at $316 billion, trailing 12-month transaction volume finished the year close to 70% off the recent highs.

As interest rate volatility whipsawed the capital markets last year, a noticeable shift in buying patterns saw investors move up the quality spectrum. The reason for the upward reach is at least twofold. The first is the opportunity to acquire high-quality assets that are marked down over 20% compared to peak pricing in the first quarter of 2022. The second is a growing desire to manage risk through owning better-quality assets where unexpected capital expenses are less likely. In the 3- Star property segment, price declines were less pronounced, falling about 15% from the peak where deals once traded for approximately $210,000 per door.

In addition to asset quality, investors adapted their approaches to stay ahead of rent growth, leading to noticeable shifts in sales volume rankings. The buying frenzy of the second quarter of 2022 propelled national transaction activity, with cities like Atlanta, Phoenix, New York City, Los Angeles, and Washington, D.C., taking the lead. However, subsequent increases in interest rates caused a substantial reshuffling, reestablishing New York and Los Angeles as the dominant players. Meanwhile, previously thriving markets like Atlanta and Phoenix experienced decreased transaction volumes due to the steady influx of new supply and stagnant rent growth.

In the aftermath of the pandemic, institutional capital was in the spotlight, surpassing private-buyer activity as they outmatched lesser-known names while competing in the same arena. Yet, as interest rates rose, institutional capital took a breather, which allowed private buyers to gain market share in 2023.

Pricing trends have also experienced discernible changes. Loan-to-value (LTV) ratios, once commonly found at 70%-80% with 3%-3.5% interest rates, have now slipped to around 55%-65% LTV with high-5% to mid-6% interest rates. Therefore, sellers increasingly offer debt assumptions to preserve disposition targets and supply greater financing certainty to their buyers.

As property values decline, rising yield requirements are diffusing across assets of varying quality and vintages. These spreads were flattened during the buying spree in 2021 but are re-emerging with rising uncertainty. Currently, cap rates for many 4 & 5 Star assets fluctuate in the mid-5% range, while 3-Star assets have broadly climbed toward 6%. Older, less luxurious assets are now pushing north of the 6% threshold.

With a significant stake in the $4.5 trillion commercial real estate mortgage debt, the multifamily sector anticipates a modest increase in loan maturities this year, with obligations of $255 billion and $243 billion in 2024 and 2025, respectively. Remarkably, despite these ongoing shifts, delinquency rates remain low on a relative basis when compared to the office, retail, and hospitality sectors.

Although factors such as declining household formations, rising supply deliveries, and weakening demand may present temporary obstacles, the sector has successfully emerged from similar challenges in the past. The ability to adapt and evolve reinforces its continued importance in the commercial real estate landscape, emphasizing the significance of a mindful strategy to navigate these ongoing shifts.

Here are several graphs illustrating the current national commercial multifamily market in The United States of America:

Full Commercial Multifamily Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183589/United_States-MultiFamily-Capital_National-2024-01-15_compressed.pdf

1 Vote

Greetings,

Here is an update on the current National Commercial Retail Real Estate Market in The United States of America:

Retail transaction volume fell to about $50 billion in 2023. When pitted against the decade-long trend, last year's initial sales estimates signify a decline of approximately 25%. Notably, in contrast to historical accelerations in transaction activity each year, 2023 investment activity shuffled sideways, with each quarter contributing roughly $13 billion to the annual total.

Among the varying price points in the retail investment market, two major strategies characterize today's capital markets environment. On the one hand, smaller private investors pay all cash to take advantage of 1031 taxdeferred exchanges and tend to focus on long-term investments with estate planning goals in mind. They prefer assets with little hands-on management, and the ebb and flow of the debt markets have a muffled but delayed impact. This cohort often buys single-tenant net-leased properties valued at just a few million dollars.

Conversely, those more heavily reliant on the debt markets are more prone to react quickly to macroeconomic variables like rising interest rates. These investors focus on large, management-intensive projects and adjust price targets to reflect their changing cost of capital and future cash flow projections. Notably, a broader market view causes these capital allocators to react to relative perceptions of risk across property types. The combination of no new supply, all-time low vacancies, and the mark-to-market story around inplace rents continue to pull capital into the retail sector.

The number of marketed investment deals at the top end is still limited, but sluggish transaction activity is not due to a lack of supply at the low end of the market. In fact, the number of triple-net listings is growing as the average time on the market rises. One of the contributing factors to falling sales volume is mismatched pricing expectations as builders deliver new pre-leased offerings. The typical bid-ask spread for investment sales under $3 million stood at around 9% in through the third quarter of 2023.

While smaller exchange buyers might accept going-in yields that are below short-term treasuries, larger investors must adapt to a higher cost of capital. Investment sales over $10 million, which saw cap rates in the mid-5% range in early 2022, have risen into the 6% to 7% bracket as of the fourth quarter of 2023.

Broadly speaking, retail properties have seen a dip in value, but struggling malls heavily influence the double digit price declines across the top end of the market. Grocery-anchored neighborhood centers are highly sought after and often fetch cap rates in the low 6% range, with better quality assets pushing well into the 5% region. At the other end of the pricing spectrum, unanchored retail strip centers and large power centers may see pricing above 7%, which can occasionally push into the 8% to 9% range as specific market and quality factors influence each transaction.

As an illustration of the disparate range of cap rates in the retail space, a local buyer, SJ Amoroso Properties, traded into Strawflower Village in Half Moon Bay, CA, south of San Francisco, at a 5.4% cap rate in November. Total consideration for the asset came in at $34 million, or $430/SF. The 78,940-square-foot, grocery-anchored center was 96% leased and featured a 33,000-squarefoot lease with Safeway.

In the unanchored retail space, another private buyer traded into Oracle Wetmore in Tucson, AZ, for $25.5 million, or $264/SF. Acacia Real Estate Group priced the 96,634-square-foot power center at a 7.5% cap rate. The 2005-built project was 100% leased and included PetSmart, World Market, Jo-Ann Fabric and Craft Stores, and ULTA Beauty.

As we make our way through the first quarter of 2024, the $164 billion in retail loans maturing between 2024 and 2026 offer the market a lot to consider. Banks hold approximately 50%, and CMBS investors carry an added 27%. Lending standards are tight across all lender types, and regional banks are pulling back from their once rapid pace of originations. The new year will also test the U.S. consumer's ability to keep spending, and fortunately, a lack of new retail construction and historically low availability rates should put a ceiling on how high vacancy rates climb in the event of a demand pullback.

Here are several graphs illustrating the current national commercial retail market in The United States of America:

Full Commercial Retail Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183590/United_States-Retail-Capital_National-2024-01-15_compressed.pdf

0 Votes

Greetings,

Here is an update on the current National Commercial Office Real Estate Market in The United States of America:

The office sector's challenges continue to be pronounced, with increasing vacancies, heightened tenant improvement costs and waning rent growth tempering investor interest. Initial estimates of transaction volume in 2023 suggest that a little less than $35 billion traded hands last year, a level reminiscent of the post-Global Financial Crisis recovery.

As quarterly sales volumes have dipped below the pandemic's lowest points, 2023 sales volumes fell nearly 60% below 2022 levels, mirroring figures from 2010. Typically, the fourth quarter concludes each year with a surge in transaction activity. Yet, the final quarter of 2023 drug in an unremarkable print with the lowest total since 2009.

The decline in larger deals has reshaped the most active buyer profile. Traditionally, institutional and REIT investors have been responsible for around 40% of acquisitions, while private buyers have accounted for a similar share. However, private buyers have now stepped to the fore, representing about half of all purchases today.

Transparency in price discovery is improving, and there is an emergent shift in investor sentiment. A select minority now appears more willing to embrace lease-up risks when the associated seller discounts are notably significant. Illustrating this trend, Reliance Management bought Gainey Center II in Scottsdale, Arizona, for $175/SF ($26.5 million) from a joint venture between Goldman Sachs and Lincoln Property Company. To provide context, this property traded at $334/SF ($50.6 million) shortly before the Global Financial Crisis commenced in 2007.

In another instance, Hempel purchased a distressed note for the 30-story LaSalle Plaza in Minneapolis from Northwestern Mutual Life at $74/SF ($46 million), which reflects a 50% plunge from its 2006 valuation.

For investors unwilling to step in at today's multi-tenant prices, there's a trend among conservative buyers towards single-tenant properties to offset near-term rollover risks. Highlighting this, The Herrick Company acquired the Huntington Tower in Midtown Detroit at $356/SF ($150 million) with a 5.5% going-in yield. A stable and appreciating revenue stream backs this investment in new construction with a 22-year NNN lease with Huntington Bank.

Regarding cap rates, single-tenant properties with credit and long-term lease durations can still register cap rates between the upper 5% and 6% range. However, as investors pivot from high-risk assets, which typically involve properties of lower quality and older construction, multi-tenant properties are experiencing the exponential effects of rising uncertainty.

Specifically, since the cap rate lows of 2021, new Class A properties with strong credit and term have seen yields rise by approximately 150-200 basis points, Class B properties by 200-250 basis points, and Class C properties or those facing occupancy and geographic challenges by as much as 300 basis points.

Going-in yields for the reduced volume of multi-tenant office transactions, excluding medical offices, have risen by over 200 basis points in the aggregate and are generally in the upper single-digits with pricing typically landing in the low $200s/SF territory.

On a look-forward basis, debt maturities present potential challenges for 2024. Around $117 billion in office loans will mature this year and another $100 billion in 2025. With delinquency rates climbing by 5.8 percentage points since December 2022, now at 7.2%, there's a possibility these could return to post-GFC levels in the next several quarters. Given rising debt costs, decreasing loan proceeds, and unpredictable demand, upcoming loan maturities will indeed test the market's resilience. However, as asset valuations come further into focus, the vast pool of capital remaining in the sector should present strategic opportunities for informed investors.

Here are several graphs illustrating the current national commercial office market in The United States of America:

Full Commercial Office Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183588/United_States-Office-Capital_National-2024-01-15_compressed.pdf

0 Votes

Greetings,

Here is an update on the current National Commercial Industrial Real Estate Market in The United States of America:

Initial estimates of industrial investment activity suggest that a little less than $60 billion exchanged hands in 2023, approximately 15% below the market's 10-year average. Comparatively, trailing 12-month sales volume peaked in the second quarter of 2022 at $140 billion, but has since fallen close to 60% from the recent highs.

This slowdown highlights the lingering impacts of rising interest rates and the commensurate uncertainty around asset pricing as rent growth has begun to decelerate.

However, private capital remains at the forefront of buying activity, fueled by a steady tide of fresh entrants to the sector and existing operators' efforts to beef up their portfolios. Not to be left behind, institutional and public REIT investors persist in their pace of acquisitions, homing in on first-class developments and prime locations.

Yields on stabilized industrial investments continue to price in a tight range over treasuries, which began falling in the fourth quarter due to slowing economic growth and the market's expectations of rate cuts beginning in the first half of 2024.

Properties offering in-place rents substantially below market can still see cap rates in the upper 4% range, but a growing portion now trades in the low 5% spectrum. These yields were once seen in the low- to mid-3% range before the Federal Reserve's rate hiking campaign began in 2022. By contrast, secondary markets and deals with a restrained mark-to-market opportunity can see pricing in the 5% to 6% band, as investors in these markets are less willing to apply negative leverage beyond the first couple of years. At the top end of cap rates, deal profiles that lack a sizeable rent growth story and rely on bank or CMBS debt can find yields in the 6% and 7% range.

In October, Faropoint purchased two 1970s vintage business parks outside Newark, NJ, from a venture between Camber Real Estate and Advance Realty Partners. The 770,603-square-foot, 10-building portfolio traded for $144.5 million, or $188/SF, at a 6.25% cap rate. The transaction signifies a growing trend of industrial investors acquiring shallow-bay product in established locations to avoid competition with the growing supply of distribution centers hitting the market.

In the same month, Terreno Realty (NYSE: TRNO) acquired a two-tenant, 112,363-square-foot shipment facility in Redondo Beach, CA, from Link Logistics, a subsidiary of Blackstone. The 1968-vintage, 100%- leased project was priced at a 5.3% cap rate, which equated to $45.7 million, or $407/SF. The property is situated immediately west of the 405 freeway north of Manhattan Beach Boulevard, and it checks several boxes for institutional capital as this buyer profile continues to be drawn toward infill locations in coastal markets.

After eight quarters of declining transaction volume, 2024 may see an uptick in sales velocity if the 2008-2009 commercial real estate downturn serves as a guide. During that period, the number of closings fell for seven consecutive quarters before rebounding 74% over the ensuing two years.

Additionally, the $24 billion in maturing CMBS loans this year could stimulate sales activity as the interest rate environment will likely be much different from their rates at origination. Fortunately, a substantial amount of equity has been built up in recent years, and a near-term maturity may serve as a catalyst for owners to take profits and recycle the capital into new ventures.

Here are several graphs illustrating the current national commercial industrial market in The United States of America:

Full Commercial Industrial Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1183587/United_States-Industrial-Capital_National-2024-01-15_compressed.pdf

2 Votes

Greetings,

Here is an update on the current National Commercial Hospitality Real Estate Market in The United States of America:

To no one's surprise, trading volume in the third quarter decreased by around 40% from the same quarter last year. As higher interest rates keep deal underwriting difficult, the bid-ask spread continues to be elevated. Owners with strong operating histories encounter buyers with an economic slowdown on their minds and, so far, neither side is willing to give. The highly anticipated 'wall of distress' has not materialized and from listening to industry participants, it is not clear that it will. At industry conferences borrowers bemoan the fact that not only are rates higher, but spreads have increased as well, putting continued pressure on interest rates up and down the debt capital stack.

Cap rate forecasts have been inching higher. Part of the calculus here was the contraction in cap rate premiums over cap rates observed in the office sector. Historically, hotel cap rates were 100 to 150 basis points higher than office cap rates. In the most recent past, this margin continued to contract, and the forecast is that office cap rates will rise, and that hotel cap rates, although higher as well, will have a smaller delta over office cap rates, down to sub-100 basis points.

Despite lower trading volume, some select deals are getting done. Ryman Hospitality Properties bought the 1,000-room J.W. Marriott resort in San Antonio to add to its stable of meeting-oriented hotels for $800 million. Blackstone was able to transact this property at a profit of over $120 million. In New York City, the Park Lane Hotel on Central Park South traded for just over $1 million/key for its 610 rooms to the Quatar Investment Authority. Just down Broadway, a triple-branded Hilton hotel, featuring a Hampton Inn, Home2Suites, and Motto, with just over 1,000 rooms, was sold for $470 million dollars from the developer to two separate entities. These deals signify that, for motivated buyers, financing costs are not as important a consideration as the location or a strategic rationale to own a property in a preferred market.

On the other side of the spectrum, hotels that relied on downtown transient demand and were hit hard over the past two years are seeing some interest, as well. Cases in point are two closed hotels: the Standard Hollywood, and the New York City Marriott Eastside, both selling for over $100 million in 23Q1.

Borrowers of two high-profile portfolios decided to stop supporting their loans, so industry participants are assessing the likelihood of these properties trading. Park Hotels and Resorts decided to stop debt payments on their two-hotel, 3,000-room, portfolio in San Francisco, the Parc 55, and the Hilton San Francisco Union Square. Subsequently, Morningstar decreased the value of these properties in their calculations by roughly $1 billion, from $1.5 billion in 2019 to $475 million today. And Ashford Hospitality decided to hand back the keys to a 19-hotel portfolio to the lender.

The Hersha take-private transaction by KSL for around $1.4 billion, at a 60% stock price premium, has so far not been a catalyst for future M&A activity. Hersha had signaled that they were looking for a buyer, and the deal gave KSL an easy way to expand its growing footprint by purchasing 3,800 hotels in 25 properties.

The transaction outlook continues to be muted as lack of clarity in the interest rate environment keeps buyers on the sideline. Rather than consummate deals, funds may be more likely to offer debt or preferred equity positions to allow owners to right-size their capital stack without giving up full ownership.

Here are several graphs illustrating the current national commercial hospitality market in The United States of America: