If you are a family office investor, real estate fund or high net worth individual, right now is the time to buy a hotel in the USA. Here’s a look at five reasons why it makes sense sooner than later: 1. Historically Low Interest Rates The recent decision by the Feds to keep interest rates low through 2013says it all. The cost of debt money has never been cheaper. There are also signs that some banks and lenders are starting to make hospitality sector real estate loans again. 2. Lodging Economic Factors Favorable Analysts at the recent Hotel Data Conference consider the lodging industry in a growth mode even during the recent economic uncertainty. This excerpt on those factors if you are looking to buy a hotel tells the full story. 3. Valuations Are Rising Two years ago, there were was talk again of Cap Rates climbing over 11%-12%. The fact is it barely ever happened. Here’s some oversight by one of the leading hospitality appraisers on valuations to share with your hotel advisors. 4. Next UP Cycle Soon Traditionally, the cyclical period for hotels is usually about 7 to 10 years. The recession by all accounts in the lodging industry started in 2007 in most markets across the USA. There was also a lot of talk of distressed hotels in default between 2009 and early 2011. Many real estate investment portfolios were also formed with the intention of acting as “vulture funds” to acquire non-performing hotel assets. For example, my group received over four dozen calls in the last twelve months to inquire about properties available for purchase through a hotel receivership that we would be potentially involved in. It’s now the 3rd quarter of 2011 and most of the distress is either being worked out, loans extended or bought by opportunistic private equity firms. Do the math… The next up cycle is in two years. 5. The Chinese Are Coming It’s no surprise that Asian investors, especially cash flush ones from mainland China, are setting up investment funds and portfolios to acquire hotels here. The Chinese are astute, patient and long term oriented investors. They will gladly pay asking or market driven prices, even if you think valuations are too high, with the idea of owning that real estate for twenty years and more. That’s at least 2-3 hotel investment cycles. Are you planning or advising someone to buy a hotel within the next 12 months? What major factors are affecting your decision as to why now and not later?
