Part of hotel investor services is advising clients when to buy, hold or sell during the investment period. Hotel real estate in the USA is very cyclical. It usually has a seven to ten year cycle that mirrors the lows and highs of the national economy. – Since 2008, we have been in the bottom of that cycle. Given all of the positive lodging economic news going forward and barring any unforeseen activity in the world financial markets or a double dip recession, the bottom appears to have flattened and the cycle will start edging upward in 2012. Right now is the time to buy. – However, this hotel cycle also has some unusual factors affecting it for hotel investor services and their clients. One factor is the lack of debt financing. Or, if it is available for a particular acquisition or development, it has some stiff requirements. Often, the hotel financing still requires fifty percent equity or cash no matter how credit worthy the borrowers are. In other words, all cash is the operative word to get into the cycle now. – Another factor in this cycle is the number of condo hotel developments that resurfaced as the deal of the century pre-2007. This also fueled a lot of the hotel construction in the pipeline. Many either stalled after construction or were cancelled. This has left many in the hotel investment services and development business with new projects to complete. The caveat here for your business plan for a hotel is to buy existing and operating lodging properties – not new construction, especially failed hotel condo developments. – I talked about how hotel deals under $20 Million are the hardest to get done in an earlier blog. These deals are more plentiful and present the most opportunity in terms of better pricing and ROI. However, do not expect to find fire sales. Most are still selling at CAP rates of 10% or less and below 8% in major markets and destinations. Hotel investor services clients should figure on doing all cash deals and acquisitions that are open and operating, particularly smaller hotels under 200 rooms in 2012. In particular, are those hotels that can get turned around and sold at the desired rate-of-return and at the upward end of the cycle, which I estimate will start in 2018.
