The PKF/HRG survey of both equity and debt investors does reflect declining vales of lodging properties.  However, it shows dividend rates, or cash-on-cash returns continuing to provide relatively aggressive yields, Corgel reports.

"As operators continue to manage properties efficiently, operating profits remain strong.  As a result, many owners are electing to hold on to their assets.  With the market at the top of its investment cycle, owners seem to be selling only those assets that are not strategically desirable.  On the other hand, equity investors are looking to acquire properties at discounted values to reflect minimal upside potential and perceived downside risk of a looming recession," says Scott Smith, MAI, a vice president in the Atlanta office of PKF Consulting.

Results of the Survey bear out these observations.  The most frequently cited investment measures, capitalization rates and yield rates, or IRRs, were higher in 2000 than any other year since 1992.  Having perhaps peaked in 1988, hotel investments have taken a dramatic downturn in 2000, as the effects of overbuilding and marginal increases in ADRs have taken their toll.  Related statistics, such as the holding period, indicate that most investors are in a wait-and-see attitude, preferring to hold for cash flow and not take the discount on today's values.  Loan-to-value ratios and debt-coverage ratios have remained stable, suggesting that lenders feel the current terms afford adequate protection for any increase in default risk.

"Given the turn the economy has taken, the Survey spotlights some of the thinking that has gone into recent investment decisions and helps in understanding how these decisions may be shaped in the near future," Dr. Corgel explains.

Published by PKF Consulting since 1986, Hospitality Investment Survey analyzes responses from debt and equity investors all over the U.S. to "take the pulse" of the hotel segment of real estate investment.  The new edition of the Survey presents snapshots of key investment criteria for 2000 - cap rates, discount rates, cash-on-cash returns, and more.  These figures are presented in High, Low, and Average rates for both full-service and limited service hotels, along with averages for all hotel properties.  Historical tables present criteria biennially, starting in 1986.

This year's edition includes a compilation of predictions for June 2001 by active hotel investors and lenders.  During December 2000 and January 2001, investors and mortgage lenders were surveyed regarding criteria used for allocating capital to hotels.  The expectations of these experts for June 2001 were compiled and have been made a feature of the 2001 edition of the Survey.
 

The Hospitality Research Group (HRG), headquartered in Atlanta, is the research affiliate of PKF Consulting, the international consulting and real estate firm specializing in the hospitality industry.  HRG, along with PKF Consulting and hotel brokerage affiliate Hospitality Asset Advisors Incorporated are wholly owned subsidiaries of Hospitality Asset Advisors International, a U.S. Corporation.  HAA International has offices in New York, Boston, Philadelphia, Washington DC, Atlanta, Houston, Dallas, Los Angeles, San Francisco, and Singapore.