From Urbana Varro, Hospitality Investment Experts, www.urbanavarro.com:

Rising profits, limited supply and improved access to cash, make this an excellent time to invest in the U.S. hotel industry, according to PKF Consulting’s Hospitality Investment Survey.

Due to limited supply growth, revenue per available room (RevPAR) is forecast to grow between 6 to 7 percent in most major U.S. lodging markets, the survey said. Given the strong outlook for revenue growth, net operating income (NOI) is forecast to increase by more than 10 percent through 2015.

Interest rates for hotel development and acquisition remain at historically low levels and the dividend yield from a hotel investment looks very attractive given the risk, researchers found. As special servicers and lenders work out their troubled lodging assets, fewer distressed properties remain to have their loans modified or sold. The limited number of quality hotels available for sale is causing aggressive bidding.

The report said overall capitalization rates fell to 8.38 percent, a 35 basis point decline compared to the 2012 survey results and the lowest recorded cap rate since the inception of the survey. This year’s survey also indicated that discount rates for hotels decreased 37 basis points to 11.05 percent.

Despite the positive outlook for industry performance, many survey participants anticipate a shorter holding period. These respondents fear increases in supply and potential upward pressure on interest rates.

The sentiment of the survey indicates that financing, though not abundant, is becoming more available and affordable. Many survey respondents said new construction financing is becoming more available in second- tier and tertiary markets.

Interest rates fell in 2013 to 5.54 percent, a comparative year-over-year drop of 104 basis points.

Debt service coverage ratios increased slightly, though they remain near 2007/2008 levels. Loan-to-value ratios (LTV) experienced minimal change compared to 2012. At 64 percent, LTVs are below the historical Hospitality Investment Survey average of 66 percent.

While most investment and financing criteria remained relatively unchanged over the past 12 months, two of the most important criteria continue to improve: access to capital and interest rates. Investors and lenders surveyed continue to be bullish regarding the next few years, and due to the lack of high-quality assets being marketed for sale, PKFC expects the transaction activity of well-branded assets in second-tier and tertiary markets to increase over the next 18 months.

–  Posted with the Boston Business Journal, June, 18, 2013

Within commercial real estate investing, hotel fundamentals continue with vigor in 2013. Urbana Varro’s (www.urbanavarro.com) continuous financial review process, coupled with our strategic sensitivity analysis data is indicating that underpinning the market’s performance is the fact that supply increases will again be below the long-term average in 2013.

Over the past 20 years, financials have shown periods of below-average supply growth to coincide with above average RevPAR (Revenue per Available Room) growth, and we expect this to feature as a trend in 2013 as well. These trends should be, and are, driving factors behind portfolio management decisions and strategies, resulting in positive  return-on-investment results and increased gains on principal capital investment.

Demand growth is expected to outstrip supply increases, which will give a lift to occupancy rates and spur pricing power.

In the spring of 2010, two private equity guys, Jeremy Soder and Jeremy Robinson, began talking about opportunities in the hotel sector. Read more…

Dallas-based GVM Hotel Partners, a joint venture of affiliates of Gatehouse Capital, Varro Hospitality, and private investor John Muse, has acquired five TownPlace Suites by Marriott properties for a total purchase price of $30 million.
Read More…