Hotel Capitalization Rates Turn the Corner, According to USRC Hotel Investor Survey

COLUMBUS, OH–(Marketwire – September 7, 2010) –  The Mid Year 2010 USRC Hotel Investor Survey indicates that, in general, overall investment parameters for both limited-service and full-service hotels have become more aggressive, further evidence that the industry has, at least for now, entered into a hotel recovery phase. More specifically, full-service going-in overall capitalization rates decreased by 60 basis points, while discount rates moved lower by 90 basis points. Unlike in the past quarter, yield requirements lessened, while anticipated growth (reflected by ADR expectations) increased, the healthiest movement in investor sentiment we have seen in the past two years.

As always, it is important to see the data in the context of longer-term trends. Full-service discount rates are now at their lowest level since the Mid Year 2008 survey, just prior to the economic and credit collapse of the Fall of 2008. They are hovering very near the survey results of the recovery years 2005-2006.

Full-service hotel capitalization rates continued their decline, with the direct capitalization rate for full-service hotels of 8.7% in the current survey down 60 basis points from the average for the previous Winter 2010 survey.

The complete Winter 2010 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 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 1970’s. 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 [email protected].