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  The 2006 LIIC – The Lodging Industry Investment Council - Top Ten: 
An Annual Survey of Lodging Investment Trends and Challenges
May 15, 2006 - Each year, the think tank members of “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 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. 

All together, 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 council. LIIC serves as the leading industry think tank servicing the hospitality business ( 

This year’s survey was compiled by LIIC’s co-chairman, Mike Cahill. Mr. Cahill is president and founder of HREC – Hospitality Real Estate Counselors, a leading national hotel and casino advisory and brokerage firm specializing in lodging property sales, debt refinancing, consulting, appraisals and litigation support. ( 

The results of the survey are as follows: 

1. Hotel Value Increases Moderating: For the next 12 months, 61% of LIIC members believe that hotel values, as a whole, will increase; 32% believe hotel values will be flat. These results are in sharp contrast to last year’s survey where almost all LIIC members forecasted value growth. Multiple respondents still believe that increasing hotel construction costs will drive up the desirability of buying existing assets in contrast to building new. 
2. Upper Upscale Hotel Investor Favorite: Of all the various hotel rate chain segments, 81% of LIIC respondents believe that hotels in the highest quality category - Upper Upscale will increase in value over the coming year. On the other side of the rate scale, 63% anticipate that values for hotels in the Economy sector will be flat. 
3. Hotel Investment Market Peaking: Lodging industry real estate leaders believe that we are at or close to reaching the peak of this hotel investment cycle. A surprising 87% of survey respondents responded that values will peak in the next 12 months. 
4. Quality and Volume of Product to Buy? Survey results indicate a lack of consensus with respect to both the quality and volume of hotel acquisition opportunities. With respect to quality of hotels available for purchase, hotel investors were all over the board from seeing an abundance of “pigs with very nice coating of lipstick” to “very high” quality assets. The volume of hotels appears to be very tenuous with responses ranging from “high by historic standards” to “thin”. Many buyers are concerned about “soft sellers” testing the market but not really motivated to sell. 
5. Interest Rates will Rise: LIIC members clearly forecast hotel mortgage interest rates to rise over the next twelve months although the significance and magnitude of the increase appears debatable. 97% of respondents forecast interest rate increases.  Members believe that rising rates will finally begin to have a negative impact on hotel values.  Hotel loan/value ratios are anticipated to remain stable. 
6. Equity Return Rates Have Bottomed Out: Both unleveraged and leveraged equity investor return requirements appear to be stable for the next twelve months. This is good news for buyers who may not have to continue to cut yield expectations to obtain quality product. However, several investors are concerned that increasing yields available from alternative investments may begin to cause a flight out of the hotel capital market to other investment products. 
7. Happy Buyers: Those hotel investors who have purchased hotel assets over the last 24 months, appear happy with the performance of their acquisitions. 85% of those surveyed responded that their purchases are “generally meeting expectations.” More importantly, a large portion of buyers stated that their acquisitions are significantly surpassing budgets and investment return hurdles. 
8. New Supply is Coming: LIIC members envision that new hotel construction (amount of rooms actually under construction) will peak in 2008 with 2009 to follow as another big year. 
9. Room Rates will Grow: Based on overwhelming survey results (94%), the next 12 months will see continued real (better than inflation) room rate growth. The flow-through from this rate growth should increase the profitability hotel investments significantly. In select markets, many investors are anticipating double-digit rate growth. 
10. Still Good Time to Buy Hotels? 58% of respondents believe that “Yes, it is still a good time to buy hotels if you are selective”. In contrast to past surveys, there has been a surge in doubt though with 23% responding “Maybe, but the acquisition must present a compelling case”. Similar to last year’s survey, hotel investors seem to still prefer urban, high barrier-to-entry markets as the best bet to make money over the long run. 

The Lodging Industry Investment Council (

Michael Cahill
President & Founder, 
HREC – Hospitality Real Estate Counselors 

Sean Hennessey, CEO
Lodging Investment Advisors

Vice Chairman 
Jim Butler, Partner
JMBM - Jeffer Mangels Butler & Marmaro

Also See: The 2005 Lodging Industry Investment Council Top Ten; LIIC's List of Major Hotel Investment Opportunities and Challenges / May 2005
The 2004 LIIC Top Ten: An Annual Survey of Lodging Investment Trends and Challenges / June 2004
Top Ten Investment Challenges Facing the Lodging Industry / Lodging Industry Investment Council / April 2002


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