Distressed hotels will be in a good position to see valuations continue rising based on demand and expense projections. This is despite the potential for more foreclosures in 2012 with loans coming due from loans refinanced in 2005 and 2006. The added supply of defaulted hotel loans does not suggest that there will be “fire sale” pricing either. Recent reports from data analyst firms estimate that hotel operating incomes going forward are growing. Given that cap rates are still below 10% percent in many markets, values will only go up. Support of that is based on estimates from leading data firms STR, PwC and PKF at the AH&LA Conference, where all expect RevPARs to rise at least 4% next year. According to the report from PwC that sounds pessimistic yet still bodes well for distressed hotels: “Increases will especially be felt in the higher-tiered chain scales, where strong occupancy levels will allow for stronger ADR increases.” “PwC anticipates an average 7.5% increase in revenue per available room for the luxury, upper upscale and upscale segments for 2012.” “The upper midscale, midscale and economy chain scales will see an average RevPAR increase of only 5%.” As further suggested in this PFK report if you are looking to buy a hotel, expenses are expected to remain constant and not rise as well. This is in further support of income rising. While lenders may be quicker to foreclose now that the industry economic fundamentals are improving, their planning to take back the hotel as an REO may not be on the same track. A court appointed hotel receiver may instead be put in place if you are looking for bank sale resources to contact. Are you a bank, lender or special servicer with distressed hotels and pending foreclosures? If so, do you expect these particular hotels values to improve or stay flat in 2012?
Perry Group
Hotel & Restaurant Experts For The Hospitality Industry
