Hotel Online  Special Report


PKF Consulting/HRG Survey Forecasts Banner Year
for Hotel Transactions; Investors Favoring
the Full-service Segment 


Annual Hospitality Investment Survey, Just Published, Reveals
Optimism Among Hotel Investors

Atlanta.  May 5, 2004.    In its just-released 2004 edition of Hospitality Investment Survey, PKF Consulting and the Hospitality Research Group find that, as the national economy continues to rebound, the hospitality industry is optimistic that the demand for lodging will increase in 2004 after three years of decline, according Mark Woodworth, Executive Managing Director of PKF Consulting’s Hospitality Research Group.

Results of the PKF/HRG survey, together with follow-up discussions with both debt and equity participants, indicated that significantly more capital is now available for hotel investment, as compared to 2003.  With returns on alternative real estate investments such as office and industrial significantly below historical averages, both institutional and private investors are looking to the lodging industry to outperform other real estate sectors.

“Sellers [of hotels], who have waited up to three years to sell, are anxious to redeploy capital in other lodging product or locations.  With both buyers and sellers having motivation to execute transactions, coupled with the availability of both debt and equity, we expect that 2004 will be a banner year for hotel transactions,” writes Scott Smith, MAI, the Survey’s editor and a Vice President in the Atlanta office of PKF Consulting.

Hospitality Investment Survey presents a series of tables that reflect the rising optimism from both debt and equity participants.  It explains that the spread
between that overall capitalization rate and the discount rate continues in the four
to five percent range, suggesting owner expectations for growth in net operating income will surpass recent historical performance.  In addition, with interest rates at an all-time low, the cost of financing continues to decrease, thereby decreasing the investor’s rate-of-return requirements as compared to 2003.  Stable loan-to-value and debt-coverage ratios suggest that lenders feel current terms afford adequate protection from delinquency and default risk.

Full-service hotels remain number one

The Survey presents evidence that investors continue to favor the full-service segment in almost all regards, with this difference increasing over previous surveys.  With higher barriers to entry for full-service hotel development, investors see more of an upside to increased profits for this segment.  Full-service mortgage interest rates are 60 basis points lower that limited-service loan terms, indicating the preference lenders have for the full-service segment.

The Survey concludes that investor optimism has generated increased interest in purchasing product at below-replacement costs.  Sellers are becoming more motivated to dispose of underperforming assets and appear willing to meet buyer expectations. 

“As market fundamentals continue to improve through 2004 and 2005, we would expect that investor yields will continue to improve significantly,” Smith writes.

The 2004 edition of Hospitality Investment Survey also contains an article entitled “Predictive Powers of Hotel Cycles,” by John B. (Jack) Corgel, Ph.D.  The article examines the array factors affecting hotel market cycles and suggests that many major U.S. markets will achieve long-run average levels by the end of 2004, “meaning there will be room rate growth in 2004, as well.”  Corgel is a professor at the Cornell University School of Hotel Administration and serves as Managing Director of Applied Research at the Hospitality Research Group of PKF Consulting.

Hospitality Investment Survey is available at $150 per copy from the HRG website at or by calling Claude Vargo at (404) 842-1150 ext. 237.

PKF Consulting is an international consulting and real estate firm specializing in the hospitality industry.  Together with its affiliates, The Hospitality Research Group (HRG) and the PKF Capital Markets Group (CMG), the firm has offices in New York, Boston, Philadelphia, Washington DC, Atlanta, Houston, Dallas, Los Angeles, and San Francisco.


Mark Woodworth
Executive Vice President
Hospitality Research Group
3340 Peachtree Road, Suite 580
Atlanta, GA 30326
(404) 842-1150 x222

 Scott Smith, MAI
Vice President
PKF Consulting
3340 Peachtree Road, Suite 580
Atlanta, GA 30326
(404) 842-1150 x233

Also See: Demand in the Full-service Hotel Sector is Expected to Increase by 6.3% in 2004; Best and Worst Hotel Markets in Terms of RevPAR Growth / PKF Consulting / January 2004
First Uptick for Hotel Industry in Three Years; Full-Service Hotels Lead the Way In U.S. Hotel Profits for 2004 / Hospitality Research Group / March 2004

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