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Hotel investors continue to bet on high-end segment

Confidence keeping up as more than US$21b worth of luxury hotels changed hands in the 12 months through Nov

New York

THE world's most affluent travellers are showing little sensitivity to higher room rates, giving property investors confidence to spend large sums on luxury hotels.

LVMH's US$2.6 billion deal last Friday to buy high-end hotel company Belmond caps a big year for prime hotel assets, as investors bet that demand for super-expensive hotel rooms will keep up.

More than US$21 billion worth of luxury hotels changed hands in the 12 months through November, according to data from commercial-property brokerage Jones Lang LaSalle.

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That's a 44 per cent increase from the previous 12-month period, driven by the expectation that a scarcity of high-end assets will allow operators to increase room rates.

Belmond's trophy properties - such as the Hotel Cipriani in Venice and the Copacabana Palace in Rio de Janeiro - have rich historical pedigrees that make them impossible to replicate.

Even building a new Ritz-Carlton or Waldorf Astoria can be an expensive and lengthy process. Instead, developers have focused on limited-service properties, lessening the new supply coming in at the high end.

"Hotels are full and can charge very high prices," said Jan Freitag, a senior vice-president at lodging data provider STR.

"If you're sitting in the luxury segment right now, the people who buy that product seem to be fairly price insensitive."

LVMH agreed to pay US$25 in cash for each Belmond share. The stock has more than doubled since Aug 8, when Belmond announced its intention to explore a sale.

Belmond is something of a rarity in the hotel world, as a management company that owns prime real estate.

While property investors have binged on luxury-hotel purchases, brand operators have also made new bets on the high-end segment, led by Hyatt Hotels' recent acquisition of Two Roads Hospitality and Hilton Worldwide Holding's impending launch of a new luxury brand.

Potential buyers that lost out on Belmond can shift their attention to another portfolio of high-end hotels.

China's Anbang Insurance Group is said to have hired bankers to help sell a collection of properties including the JW Marriott Essex House in New York, the Westin St Francis in San Francisco, and the Four Seasons in Jackson Hole, Wyoming. BLOOMBERG