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of 2002 - Way Down, But Not 'Way Different' |
by: John. B Corgel, Ph.D. and Kristin Rohlfs
Hotel real estate transaction volume in the U.S. during the first eight months of 2002 slowed to about 40 percent of the volume recorded in 2001, 2000, and 1999. The Hospitality Research Group of PKF Consulting (HRG) identified 173 sales year-to-date (September 1st) compared to 462, 553, and 409, respectively during the same period of the past three years. Why has the hotel real estate market stalled? Some possible explanations include:
Comparison of Hotel Transactions An examination of transaction information indicates no meaningful differences in property characteristics and pricing for hotel that sold during the first eight months of 2002 compared with those that sold during the same period of the last three years. Exhibit 1 shows that the average PPR for all, full-service, and limited-service hotels was not materially different in early and mid-2002 than during comparable periods of 1999, 2000, and 2001. Also, the distribution of sales between full service and limited service remained fairly constant during the same periods of the last four years. Exhibit 1
*First eight months of each year; 2002 data are preliminary.
In Exhibit 2, information is presented on room count, chain affiliation, and the age of hotels that sold from January 2002 through August 2002 versus those sold during the same period in recent years. As with PPR, none of these characteristics distinguishes the transactions in 2002 from transactions in 1999, 2000, and 2001. Exhibit 2
Source: HRG Transaction Database; Original sources include CoStar, HMBA, various publications Why no differences? The 60 percent decrease in hotel real estate transaction volume during the first eight months of 2002 comes as no great surprise. Economic downturns rarely provide healthy breeding grounds for real estate buyers and sellers to come together. The fact that the characteristics of hotels trading in 2002, especially the average PPRs, have not changed from recent years also may be explained. Hotels in the U.S. experienced large revenue declines during late 2001 and 2002, but only modest reductions in net operating incomes and before-tax cash flow. Expenses, particularly labor and interest costs, fell along with revenues, which help support asset pricing and reduce motivation to sell at discounts. This trend may not reverse until hotel investment returns decline or bond yields and stock market returns increase. Hence the hotel real estate market shrunk in 2002, but did not change in any fundamental way. John B. (Jack) Corgel, Ph.D. is the Managing Director of Applied Research for the Hospitality Research Group of PKF Consulting. Kristin Rohlfs is a Senior Research Associate. Both work in the firm�s Atlanta office. |
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Jack Corgel Managing Director The Hospitality Research Group 3340 Peachtree Road, Suite 580 Atlanta, GA 30326 (404) 842-1150, ext 227 |