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Some of the drivers for a hotel asset manager to maximize returns for its owners and investors are timing and market opportunity. In particular are the when and where given the cyclical nature of hotel investments and the acquisition and disposition timeline in order to get the best return. Get it right and there is a windfall of return-on-investment in hotel real estate. According to the HVS 2012 USA Hotel Valuation Index, several major cities as well as secondary ones present the most upside. There is also caution to be considered in this data concerning hotel valuations among several cities based on our hotel asset manager review and analysis of the information. For example, HVS CEO Stephen Rushmore, Jr. and author of the publication suggests now is the time to sell a hotel in San Francisco. Or, and based on growth this year, it may be time to buy a lodging property in Las Vegas. Chicago and Nashville are also listed in the top ten cities to see strong growth. Several key points from a hotel expert perspective and extracted from the study suggest both pros and cons for investors depending on where a lodging property is in the hold period: – U.S. hotel per room values are expected to rise above $120K per room in 2016 and exceed the 2006 all time high of approximately $100K; – Valuations reached a low of approximately $60K per room at the peak of the recession in 2009; – Growth in value is expected to continue into 2016, but the highs will plateau in 2012 and 2013; – Equity yields rose from 14.1% in 2009 to 16.3% for 2011; – Financing loan to value ratios are hovering around 60% to 65% with interest rates in the 6% to 7% range, and up to 9% on lower quality loans, excluding “Trophy” properties. Hotel investment advisors and investors should also consider that hotel construction starts are still modest but new projects are up 22% according to a recent Lodging Econometrics report on the hotel development pipeline. Assuming most new hotels are constructed in 12 to 24 months, this growth in supply could start to impact buy and sell values in 2014 to 2015. In summary, this data suggests we are experiencing another hotel cycle of 7 to 10 years related to the buy, hold and sell period. The past hotel cycle lasted almost 10 and it appears this one is similar. If you are a hotel investor considering or holding lodging investments in different cities, it is wise to have a hotel asset manager evaluate holding trends now to see where the next buy or sell opportunity will present itself.
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