Hotel Online  Special Report

Hotel Investor Survey Winter 2008
Hotel Capitalization Rates Moderate Slightly
Changes Are Driven Largely By Slower Growth Expectations


 by:  Jeffrey H. Walker, MAI, CHME, February 22, 2009

The Winter 2008 USRC Hotel Investment Survey indicates that capitalization rates for both limited-service and full-service hotels have increased slightly above the record lows demonstrated in the Mid-Year 2007 and Winter 2007 surveys. There was little or no movement in overall discount rates, with the moderating capitalization rates largely a factor of slowing growth expectations in ADR, which has a direct impact on anticipated NOI growth over a holding period. 

In general, the survey reveals two potential risks to overall hotel valuations. First, the widely publicized “capital crunch” in the debt markets has led to increased borrowing costs, which in turn has likely led to some increases in capitalization rates for properties which typically appeal to leveraged buyers. Volatility in the treasury rates certainly make the ultimate cost of capital difficult to project in the near term, but it appears that overall capital tightening has had some impact on capitalization rates, but thus far the impact appears to be modest.

A more direct impact on hotel valuations may be from the overall slowing economy. Survey respondents clearly demonstrated lower ADR growth expectations in the current survey. Because of the fixed and variable expense structure of a hotel, slowing ADR growth expectations lead to disproportionately slower NOI growth. 

Our Winter 2008 survey indicates that investors continue the trend of requiring relatively higher capitalization rates for limited-service hotels as compared to full-service hotels. The direct capitalization rate for full-service hotels of 7.9% in the current survey is 30 basis points higher than the average for the mid-year 2007 survey.

The complete Winter 2008 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 of US Realty Consultants. He is a 1985 graduate of James Madison University and has been involved in the hotel and restaurant industries since the 1970’s. He 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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