2011 Growth bodes well for Investors and Hotel Asset Manager alike

If you are a hotel real estate investor or hotel asset manager, there is more positive news on the horizon for hotels both in room rate growth and higher investment activity going into 2011 and beyond. It appears with the increases in revenues and transactions that investors and lenders are now becoming more optimistic. $ SignFor one, Pricewaterhouse Coopers U.S.’s updated lodging forecast expects the focus to shift from demand growth to average daily rate gains, as pricing power returns against the backdrop of an earlier-than-expected lodging recovery. “Despite a weak national economy, occupancy rates continue to recover in many US markets, preparing hotels for uplift in average room rates during 2011. The degree of increases in room rates will vary dramatically from market to market,” said Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC.” Other news highlights that investors and lenders outlook has improved. “According to news from HotelNewsNow.com and STR Analytics – Today, two-thirds of investors anticipate occupancy to return to its prior peak by the end of 2012. More than half expect average rate to rebound by the end of 2013. This is far more optimistic than what most projected earlier this year when 2015 appeared to be the targeted year for occupancy and average rate to return to the peak levels of 2007/08. On the debt side, 38% of lenders who stated they are open to funding new loans also recently foreclosed on distressed assets. In another update, Per-room values have improved significantly since 2009, largely because of the increase in transaction activity among non-distressed assets. The average price per key during the third quarter of 2010 exhibited an 83% increase from the same period a year ago. With occupancy beginning to rebound in most markets, a recovery in overall performance is on the horizon.” This combination of higher rates and room values will provide a hotel asset manager an opportunity to drive higher IRR in the second and third years of many acquisitions made this year and next for its investors. It should also allow for a shorter hold period if per room sales activity continues to rise. Read the full articles here: PwC predicts strong rate-based growth in 2011; Hotel Investors Gauge: Investors, lenders outlook improves; US Transaction activity continues to rise through Q3. The take away here for investors and their hotel asset manager is that the window for lower to flat hotel real estate prices may have begun to close by 2012 if you are looking for discounted acquisitions in the hotel sector and assuming an overload of distressed hotel assets does not come to market. However and from our vantage point, that still remains to be seen given all of the stalled investor activity and distressed hotel assets in many markets to date.