Hotel Investment Advisors Eye Lodging Sector for Positive Growth

Every investment market turns your way once in a while and strong indications from hotel investment advisors mark the hospitality industry for a continued turnaround. Now may be the best time – to buy and invest in hotels, resorts, and mixed use hospitality venues. As The New York Times claims “After a Rough Night, Hotel Investors Are Waking Up.” The 17th International Hotel Investment Forum meets in 2014 to hear presentations on “Uncertainty, Connectivity and the Changing Economic Landscape” and “How are Investors Managing in the Current Environment – What is the Most Important Driver for Value Growth?” So, it is clear the stability and sustainability of the growth potential continues to need re-enforcement. In the pipeline Hotels – especially mid-sized properties – have been selling, and this means that investors are buying. Investors – individual and capital equity investors – watch the numbers: revenue per room, occupancy percentage of capacity, and average daily rates. Now, this recovery has only been heating up since 2010, but it seems to be ahead of other investment sectors. It indicates a resurgence in business travel, meeting and convention programs, and leisure travel. When you connect this flow with the easing of credit restrictions and the attention of the lenders’ market, you are talking investments with potential. Building Spree To some extent, debt has become more attractive. Conduits like REITs and REMICs have regained attractive status. Main Street banks are interested in new construction, and municipalities are coughing up investment incentives. All this momentum has lead to an unprecedented building spree. For example, there are four hotels under construction in Philadelphia, five in Billings, Mt, and ten hotels – new or re-modeled – have restored the economy of Collins Ave. in Miami Beach. Don’t expect news from Atlantic City or San Francisco, but look to growth in Austin, San Jose, and Salt Lake City as US demographics change. On the other hand, as hotel investment advisors are quick to point out, the lodging sector is truly an international arena, so you can expect to see advances in Berlin, Dubai, Caracas, and Brazil. There is no risk worth taking in the Middle East, Mediterranean Africa, or anything that borders Iran. The building will move where the economy is hospitable, and it will try to avoid physical and economic risk. But, forecasting beyond 3-5 years is always difficult. Not an easy sell On the average, it takes investors and a hotel asset manager 8-months to raise a hotel acquisition fund. And, trying to forecast from an non-stationary point is difficult. We may already be three years into the growth potential, and builders are worried about labor availability and construction costs Countering this drag is the press by cities to create jobs and earn taxes per bed. So, projects on back burners are suddenly back on track because the slightest positive index spurs developers to want to get ahead f material costs, increasing environmental compliance issues and labor restrictions linked to new immigration laws. Creative financing Caution changes in the face of creative responses. There are revenue bonds, USDA-backed assistance, and tax-free financing traded for commitments too local employment quotas. The success basically lies in letting people know that you are willing to deal – the city, the banks, the brand, and so on. You may be thinking acquisition of a property or the development of one from scratch, but planning requires the assistance of reputable consultants. The economic conditions of a region influence your investment decision as does the geo-political climate. Narrow the regional view to targeted cities or market areas. Identify a market niche. For example, business travel, boutique hotel, condo/hotel combination. Shop for a product property or interested landowner. Order a preliminary economic market study and appraisal. Anything new in the lodging center takes long-term thinking and investment-intensive commitment, so hotel investment advisors will jockey to identify the best targets and fund the approach with the highest ROI.