Hotel Online  Special Report

Hotel Capitalization Rates Remain Aggressive
But Demonstrate Some Moderation 


by:  Jeffrey H. Walker, MAI, CHME and Rajesh Shah 

August 21, 2006 - The Mid-Year 2006 USRC Hotel Investment Survey indicates that discount rates and capitalization rates for both limited-service and full-service hotels have continued to be aggressive, but have moderated somewhat from very strong levels seen in our last survey conducted approximately six months ago. While still very strong due to a healthy investment environment and continued anticipated growth in the industry, investment parameters have moderated slightly due to slightly increasing interest rates and some perceived risks from higher energy and labor costs. 

Our Mid-Year 2006 survey indicates that investors continue the trend of requiring higher capitalization rates for limited-service hotels as compared to full-service hotels. The direct capitalization rate for full-service hotels of 8.1% in the Mid-Year 2006 survey is slightly higher than our previous survey six months ago, but still lower than any previous survey. 

Despite some recent modest increases, interest rates remain low by historical standards. This continues to offer very attractive leverage opportunities for hotels, particularly among some securitized lenders for better quality assets. However, rising interest rates have marginally weakened this advantage. Secondly, with several years of solid income growth, the industry is perceived today as a lower risk, higher growth segment, virtually a 180-degree reversal from the sentiment in 2001/2002. Finally, the industry’s investment parameters continue to be strong due to the continued participation of institutional investors, who have recently seen hotel yields as an attractive alternative to even more aggressive investment parameters in other real estate segments. 

The complete Mid-year 2006 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, and clicking “Publications”. 

Jeffrey H. Walker, MAI, CHME is Principal and Managing Director at US Realty Consultants, Inc. He is a 1985 graduate of James Madison University and has been involved in the hotel and restaurant industry since the 1970’s, 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




US Realty Consultants
Jeffrey H. Walker, MAI, CHME
Principal and Managing Director
492 South High Street
Suite 200
Columbus, Ohio 43215
Phone: 614-221-9494 ext 150


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