| by: Jeffrey H. Walker, MAI, CHME
and Rajesh Shah, February 6, 2007
The average direct capitalization rate for full-service hotels of 7.3% in the current survey is the lowest level seen in the history of the survey. The drop in rates demonstrate a continued confidence in the industry, and a growing sense, particularly among institutional investors, that the hotel segment offers attractive yields in relation to far more aggressive investment parameters in historically �Core� asset categories such as multifamily and net lease industrial properties. While there is certainly a consensus that the hotel segment still reflects risks beyond the more traditional asset types, there is growing confidence in the risk in relation to the spread in potential yields achievable. This is particularly true given the recent RevPAR growth in the industry, and reflected in our recent survey respondents� expectations. Thus, some perceived risk associated with hotel assets is offset by potential rewards from above inflationary income growth as market demand and ADR continue to expand. It is interesting to note that, when asked to comment on potential threats to the industry, there was not a single respondent who mentioned terrorism as a risk factor, a threat which dominated respondents� comments several years ago. The complete Winter 2007 survey, including data on capitalization rates, discount rates, income and expense growth expectations, marketing time, debt parameters, and other data for both full-service and limited-service hotels, can be ordered through the company�s website at www.usrc.com, and clicking �Publications�. Jeffrey H. Walker, MAI, CHME is Principal and Managing Director of US Realty Consultants. He is a 1985 graduate of James Madison University and has been involved in the hotel and restaurant industries since the 1970�s. He spent much of his career with Hyatt Hotels and Resorts, and has been a hotel consultant since 1992. He can be reached at 614-221-9494 (ext 150) or at [email protected]. |
