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Hospitality Industry Trends |
Sunday November 23rd, 2008 |
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The Lodging Industry Think Tank 'TOP 10' Investment Trends and Challenges - By Jim Butler, author of www.HotelLawBlog.com |
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In an annual survey prepared for exclusive release at JMBM's Meet the Money(R) hotel finance conference, the Lodging Industry Investment Council (LIIC) 'Top 10' Investment Trends and Challenges were unveiled on May 3, 2007. |
The LIIC "Top 10" investment trends and challenges
The LIIC "Top 10" is compiled from an survey of LIIC members who we believe may represent up to half of the (midscale and up) hospitality assets in the United States. Accordingly, the survey reflects a significant portion of the industry's sentiment regarding trends for the next 12 months.
1. Still Good Time to Buy Hotels? 51% of respondents believe that "Yes, it is still a good time to buy hotels if you are selective." In contrast to past surveys, there has been a surge in doubt though with 28% responding, "Maybe, but the acquisition must present a compelling case." 19% are holding tough on a positive outlook with "Yes, Definitely."
2. Hotel Investment Market Peaking. 90% of those surveyed believe we are in the 6th inning or later of the hotel investment cycle. Two-thirds state the 6th or 7th inning and one-third are more pessimistic, believing we are late into the game, namely the 8th or 9th inning. No one believes the game is in overtime yet.
3. Quality and Volume of Product to Buy? The quality of assets on the market appears to be strong but weakening. For the first time, the majority of investors believe the quality of product is "average." However, the majority believes the quantity is above average.
4. Interest Rates Increases Uncertain. It was almost a perfect 50/50 split between those that believe interest rates will be flat compared to those that predict an increase. Sharp contrast to last year's survey where 97% of respondents forecast interest rate increases.
5. Favorite Hotel Brands. What brands do hotel investors love? First is the Marriott family of products (86%) followed closely by the Hilton group (83%). In third place is Starwood, with 74%. Interestingly, no other national hotel brands scored above 19% in the survey.
[Editor's Note: Kirk Kinsell, SVP and Chief Development Officer of InterContinental Hotels Group, says that the LIIC survey does not seem consistent with the fact that IHG had the largest pipeline (measured in rooms) in 2006 compared with Hilton, Marriott, Starwood and other peers. He wonders if the LIIC survey represents the development community or if survey respondents say one thing but do another. Kirk notes that IHG signed 552 franchises in the Americas ahead of all other companies (Hilton had 352), including 366 Holiday Inn and Holiday Inn Express hotels alone, 90% of which are new build.]
6. Can Equity Return Rates Really Go Lower? This year's answers were surprising with 28% believing that unlevered hotel equity rate of return requirements will actually go lower over the next twelve months.
7. Buyers Wearing Rose Colored Glasses? 97% of survey responders believe that their investments purchased in 2005 and 2006 are "generally meeting expectations." As an interesting side note, "stupid", "uneducated", "newbie" buyers were frequently cited as problems for the industry. Does this mean they have been "smart" and the others just "lucky"?
8. 2009 and 2010 Big New Supply Years. LIIC members envision that new hotel construction (amount of rooms actually under construction) will peak in 2009 (44%) with 2010 to follow as another big year (28%). Survey participants wonder if these new additions will dramatically coincide with "timing of our next recession."
9. Occupancies Flat, Room Rates will Grow. Based on overwhelming survey results (97%), the next 12 months will see continued room rate growth. Over half believe this rate growth will exceed 5%. On the other hand, 84% believe occupancies will be flat or declining.
10. Hotel Values Will Increase Slightly. For the next 12 months, 90% of LIIC members believe that hotel values, as a whole, will increase. Compared to last year's survey, value growth is expected to soften significantly with 74% predicting only slight value increases. 24% of responders believe that economy hotel values will decrease slightly over the next 12 months; 51% believe hotel values will be flat. On the other end of the spectrum, 74% predict value increases for the Upper Upscale category. Write-in answers indicate a continued investor "love affair" with luxury hotel assets.
LIIC serves as the leading industry think tank servicing the hospitality business and LIIC members represent acquisition and disposition control of billions of dollars in lodging real estate. www.LIIC.ws . Co-chairman Michael Cahill, is President & Founder of HREC - Hospitality Real Estate Counselors: mcahill@hrec.com LIIC Co-chairman Sean Hennessey is CEO, Lodging Investment Advisors: shennessey@lodgingadvisors.com LIIC Vice Chairman Jim Butler, is Chair of the Global Hospitality Group(R) at Jeffer Mangels Butler & MarmaroLLP: jbutler@jmbm.com
About the Author
Jim Butler is recognized as one of the top hotel lawyers in the world. He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM's Global Hospitality Group(R) -- a team of 50 seasoned professionals with more than $40 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, they have brought their practical advice to more than 80 "hotel-enhanced mixed-use" projects, a term Jim coined to fill a void in industry lexicon. This term describes one of the hottest developments in real estate-where hotels work together with shopping center, residential, office, retail, spa and sports facility components to mutually enhance the entire project's excitement and success.
Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right "fit" for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.
Jim is the author of the www.HotelLawBlog.com. He can be reached at +1 310.201.3526 or jbutler@jmbm.com .
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Jim Butler is the author of Hotel Law Blog, the premier source for hotel related legal news and information.
He is recognized as one of the top hotel lawyers in the world. He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM's Global Hospitality Group(R) -- a team of 50 seasoned professionals with more than $40 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. |
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