Hospitality Consulting Update 01-31-11 from the Mgmt Experts at PGI

Upcoming signs for the 2011 lodging real estate sector in several publications we follow as hospitality consulting advisers suggest a turnaround, albeit slow one, appears in order. Here’s a recap of the key articles about what lies ahead: – Investments 2011As reported in Arizona Business & Money on January 24th”A new survey from the National Association for Business Economics finds that economists are more hopeful about overall economic growth, the job market and demand for companies’ products and services by many measures than they have been since the start of the Great Recession.” – In Hotel-Online.com the new Ernst & Young 2011 Reports “While the industry has suffered two years of declining fundamentals and endured the drag of a global economic recession, we believe that the worst is over and the light at the end of the tunnel is not only visible but growing larger each day,” said Michael Fishbin, Leader of Ernst & Young’s global hospitality practice. “Lodging sector recovery is a fact; resurgence is no longer far away,” he added.” – “Like it or not, the stage is now set. This is the time. The year 2011 will present one of the greatest hotel buying opportunities for many years to come. And if you are not buying hotels this year, you will miss the window created by one of the biggest economic downturns in American history.” says Jim Butler, founding partner of JMBM and Chairman of its Global Hospitality Group®, in his January 8th Hotel Law Blog. – In another article published in Hotel-Online.com, “After rising 7.7% in 2010, Lodging Demand Expected to Increase a Further 3.2% in 2011, According to PricewaterhouseCoopers US Lodging Industry Forecast.” – Then on the valuation front and according to Suzanne Mellen with HVS International “Given all the factors at play in the hotel investment market at this time, we anticipate that capitalization rates and discount rates will continue their current low levels through 2011, barring any unforeseen shock to the industry. Interest rates are expected to remain low as the feds maintain their current monetary policy to spur economic growth. All indices point to an increasingly fluid investment environment, with sellers coming to market as increasing net income and lower capitalization rates result in value levels upon which buyers and sellers can agree. The decline in capitalization rates has had a positive impact on hotel values, with assets in some markets reaching the peak valuations achieved in the 2006 – 2007 time period, indicating that 2011 may be an excellent time to sell a hotel. Just how much of this run up in value is attributable to increases in cash flow or the lowering of rates of return varies property by property. However, it is clear that a great deal of the value gain is due to a lowering of returns at this stage of the cycle.” – Lastly, “The U.S. hotel industry has emerged from one of the worst downturns in its history, and we believe the lodging sector is entering a strong cyclical recovery as demand growth accelerates.” says David Lynn with ING Clarion Partners in New York in National Real Estate Investor Magazine. Overall, we appear to be returning to the start of an emerging upside in the hotel real estate cycle from a hospitality consulting perspective. Still, there is the impact of more distressed hotel sales on the horizon that could artificially drive down the real profit and valuation gains for another couple years. View full articles here: Economists Say Recovery is Gaining Strength New Ernst & Young Report Indicates 2011 will see Reawakening of Hospitality Sector So, You Think You Want to Buy a Hotel? For savvy investors, the time could be right. PricewaterhouseCoopers US Lodging Industry 2011 Forecast Dramatic Decline in Hotel Capitalization Rates Reflects Shift in Market Sentiment Why the U.S. Hotel Market Is Poised for Recovery One caveat from our hospitality consulting vantage point – if you are a Lender with non-performing hotel loans, the economics may be right to risk taking back an asset temporarily with the idea a disposition or sale is doable in the next 12-18 months. If you are a investor looking to buy hotel assets, the smaller or regional banks with individual hotels, as ORE (owned real estate) or DILs (deeds-in-lieu of foreclosure) may be good sources for private deals in 2011.