News for the Hospitality Executive
The 2012 Lodging Industry Investment Council Top Ten:
Annual Survey of Lodging Investment Trends and Challenges
"Hotel Investors Sluggishly Move Ahead, Despite Worries and Uncertainty about US Economy"
May 9, 2012 - (Denver, Colorado): Annually, the members of the hotel industry's preeminent think tank, "LIIC - The Lodging Industry Investment Council," are surveyed to develop a list of the major hotel investment opportunities and challenges for the coming year. This exhaustive survey results in the LIIC Top Ten; a highly regarded profile of investment sentiment and attitudes for the lodging industry for the forthcoming 12 months.
Altogether, the members of LIIC represent acquisition and disposition control of billions of dollars in lodging real estate. The hospitality industry's most influential investors, lenders, corporate real estate executives, REIT's, public hotel companies, brokers, and significant lodging equity sources are represented on the counsel. LIIC serves as the leading industry think tank servicing the hospitality business (www.liic.org).
This year's survey was compiled by LIIC's co-chairman, Mike Cahill. Mr. Cahill is the CEO and founder of HREC - Hospitality Real Estate Counselors, a leading international hotel and casino advisory and brokerage firm specializing in lodging property sales, debt refinancing, consulting, appraisals, and litigation support (www.hrec.com).
1. Economic Uncertainty: Durability and Sustainability - Compared to past surveys, uncertainty is evident in terms of when the hotel real estate market will peak and the duration of the current cycle. 37% believe lodging real estate values will peak in 2015. However, a significant 30% believe 2016 will be peak, followed closely by 24% saying 2017 or beyond. The number one concern of LIIC members is the economy; the economy is improving, yet sluggishly, and hotel investors are unsure about where the U.S. is headed. As the old Hotel 101 saying goes, "So goes the economy, So goes the hotel industry."
2. Hotel Property Values Will Continue to Increase - 98% of respondents believe that lodging real estate values will continue to increase over the next 12 months, with 50% of total responders predicting a slight value increase from 0 to 5%. Compared to the 2011 survey, results indicate a slowing of hotel property value increases from "moderate" down to "slight." Value growth is anticipated to be greatest in the luxury/upper/upscale category.
3. Quality of Hotel Product on Market Continues to Improve - Continuing the trend started in 2011, 44% of survey responders find the quality (desirability to purchase) of hotels on the market to be slightly better than 2011. However, the volume of assets to purchase continues to languish, with 43% finding the amount of lodging real estate on the market to be "average quantity." Of note is the 39% who believe the magnitude of lodging real estate on the market is "below average quantity." In the next 12 months, sellers are anticipated to be 54% traditional equity owners and 39% lenders.
4. In 2013, Lodging Transaction Volume to Increase - Comparing anticipated calendar 2013 overall hotel assets sales volume to actual/forecasted year end 2012 levels, 50% believe that the overall market will grow 5% to 10%. 20% believe transaction volume to increase 10% to 20% and 13% anticipate growth of over 20%. General consensus is that market movement, fluidity, and volume will be strong in 2013 but less robust than projected for 2013 back in 2011.
5. The Ballgame is Almost Half Over! - 57% of LIIC members believe we are firmly implanted in the 3rd to 4th inning of the current lodging investment cycle. However, anxiety was clearly evident among responders with deep concerns over U.S./global debt, real job growth, true room rate increases, and escalating costs, especially labor.
6. Debt Financing is Returning - 86% of those surveyed believe the availability of hotel debt lending will continue to get better in the next 12 months, with 67% believing "slightly" and 19% anticipating that financing will be "much better." Interest rates are predicted to remain flat (56%) as is loan/value ratios (57%). In terms of creating market movement, the increasing availability of debt leverage is highly positive yet LIIC members predict that roughly 50% of hotels will still be transacted all cash, with debt to be placed on the asset after sale.
7. Magnitude of Change-of-Ownership PIP's Problematic - As hotel investors attempt to move assets, the major hotel brands are being very aggressive with mandating massive and costly change-of-ownership PIP (Product Improvement Plan) requirements. 45% of the LIIC hotel buyers have not purchased a particular hotel in the last 12 months due to problems created by PIP requirements. Moreover, 32% have not been able to sell a hotel due to the impact of mandated PIP expenditures.
8. Hotel Development Beginning - For the first time in four years, interest (albeit cautious) in new hotel development is increasing dramatically. For the next 12 months, over half (52%) of the LIIC council believe it's a good time to build/develop hotels as long as you are selective about the product and the market.
9. Occupancy and ADR Growth Slowing - Hotel revenues are still forecasted to grow, albeit slower than predicted in past surveys. 89% believe the national occupancy level will grow only slightly/moderately (0 to 4 percentage points) and that overall average room rate growth will also be only moderate over the next 12 months.
10. Obama Re-election Bad for Hotels - 46% believe that a Barrack Obama re-election will have a "negative" impact on hotel real estate values while 52% suggest Obama staying in office will be "neutral." Only one person out of the entire survey population believed it would be positive for Obama to remain in office.
For additional information, please contact:
LIIC - The Lodging Industry Investment Council at www.liic.wsCo-Chairmen
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