Hotel Capitalization Rates Hold Steady at Strong Levels, According to USRC Hotel Investor Survey

COLUMBUS, OH--(Marketwire - Sep 11, 2012) - While the headlines surrounding the overall U.S. economic recovery remain inconsistent, and a potential year-end "fiscal cliff" looms, the overall news in the Mid-Year2012 USRC Hotel Investment Survey remains positive. Overall investment parameters have now been essentially flat for over a year, but remain strong by historical standards. Perhaps more importantly, expectations for revenue growth continue to exceed expense growth, as ADR expectations remain well above stabilized inflationary levels. Still, overall investment parameters are very near the Mid-Year 2011 survey a year ago, when full-service discount rates were at their lowest level in survey history. More specifically, in the current survey, full-service capitalization rates moved lower by a modest 20 basis points to 7.9%, down from 8.1% six months ago, but flat to the 7.9% a year ago. As yield requirements remain low, anticipated revenue growth (reflected by ADR expectations) continues to exceed expense growth estimates, indicating continued expectations of NOI recovery.

We have stated in the past several surveys that we continue to note that the current investment environment is quite bifurcated, or split, as "A+" hotel assets have found favor among REIT/institutional investors and some lenders, while those less stable properties still have a more limited buyer pool and debt options. In general, the buyer pool and lending options for good quality hotels have expanded, even if they fall short of the A+ properties in primary coastal cities. In particular, investor interest appears to be picking up for well-branded, stable limited-service hotels, while older suburban properties still lag.

The complete survey, including data on capitalization rates, discount rates, ADR 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 www.usrc.com, 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 1970s. He spent much of his early career with Hyatt Hotels and Resorts, and has been a hotel consultant since 1992. He is involved with hundreds of hotel analyses annually for national lenders and major institutional clients, and is a frequent speaker at national conventions. He can be reached at 614-221-9494 (ext 150) or at jwalker@usrc.com.