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The July 4 holiday may be over, but HVS’ predictions of recovery should keep designers upbeat.
By Mary Scoviak
Room rate recovery may still be on hotels’ wish lists, but HVS’ presentation on a shifting sentiments toward hotel capitalization should mean good news for hospitality designers. Here are some of the indicators of better times ahead that Suzanne R. Mellen, senior managing director in HVS’ San Francisco and Las Vegas offices, shared with attendees of the New York University International Hospitality Industry Investment Conference:
1. Public markets are warming up to the hotel market. At the close of 2010, hotel cap rates had fallen to 5.5. percent, “reflecting not only the expectation of a strong rebound in hotel earnings but also a downward pressure on rates of return due to the increasing competition for high-quality hotel assets as well as the greater availability of low-cost debt and equity.”
2. REIT activity has helped move lenders off the fence. Fast-paced acquisitions by REITs such as Chatham, Chesapeake Lodging and Pebblebrook “awoke hotel owners and lenders out of their paralysis.” Risk concerns are lessening and, “public markets are jumping on board to participate in the upside expected in the years to come.”
3. Availability of debt and equity, supported by good asset value, will mean more hotels coming to market. That should bring players off the sidelines.
4. Low equity rates, combined with the fact that hotel performance is on the upswing, are making it easier for REITs to raise large sums in the public markets. The low cost of revolving credit lines are also fueling acquisition.
5. The lodging industry retains its “roundly 200-basis-point premium” over other real estate asset classes.
What that means, says Mellen, is the that the hotel sector should have steady appeal as its runup begins. REITs may be leading the way, but forecasts that other investors will join in, hoping to capitalize on the industry’s turnaround. Few acquisitions will just change flags. There will be renovations, or least touch-ups to comply with new standards or new competition. And that is a reason for designers to celebrate after a spate of lean years.
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