by:  David J. Sangree, MAI, CPA, ISHC Director of Hospitality Consulting, and Rajesh Shah, Associate 

The Winter 2005 USRC Hotel Investment Survey of 25 hotel investors indicates that discount rates and capitalization rates for both limited-service and full-service hotels have decreased since our Winter 2004 survey, despite the recent increase in the U.S. Treasury Rates. The author has completed this hotel investment survey annually since 1995.  The drop in both types of rates is due to increased confidence in the overall hotel market, as most markets are projected to achieve increases in occupancy and ADR in 2005, which will increase overall revenue and net operating incomes. Full-service hotels recorded a larger decrease in direct capitalization rates as compared to limited-service hotels. The decreases have occurred as the risk associated with hotel investments has returned closer to normal levels following the impact from the recession and war with Iraq on last year's survey.  The report analyzes and provides numerous charts and tables depicting historical and current trends of the followings for limited and full service hotels:

• Capitalization Rates (Direct Capitalization Rate & Terminal Capitalization Rate) 
• Discount Rate 
• Interest Rate 
• Selling Expense 
• Management Fee Expense 
• ADR Growth 
• Expense Growth 
• Holding Period 
• Loan Term 
• Amortization Period 
• Marketing Period 
• Loan-to-Value Ratio
• Debt Coverage Ratio 
• Reserve for Replacement 
• Rooms Revenue Multiplier 
• Major Concerns

David J. Sangree, MAI, CPA, ISHC
Hotel & Leisure Advisors
14805 Detroit Avenue, Suite 420
Cleveland, OH 44107-3921
216-228-7000 Phone    216-228-7320 Fax
dsangree@hladvisors.com
www.hladvisors.com

US Realty Consultants
216-221-9191 Phone     216-221-9097 Fax 
www.usrc.com