Magazine article Mortgage Banking

U.S. Hotels on the Rebound

Magazine article Mortgage Banking

U.S. Hotels on the Rebound

Article excerpt

ACCORDING TO NEW YORK-BASED MOODY'S Investors Service's latest quarterly RedGreen-Yellow[TM] report on the health of U.S. real estate underlying commercial mortgage-backed securities (CMBS), U.S. hotels are on the rebound. Both the full-service and limited-service segments report strong growth in revenue per available room (RevPAR), according to the report.

The hotel segment scored 68 out of 100 for full-service and 69 for limited-service, pushing them into the green zone, for the first quarter of 2004, compared with scores of 53 for full-service and 55 for limited-service hotels in the fourth quarter of 2003.

Other commercial property classes turned in a mixed performance, with shopping centers the strongest segment at a score of 83 and suburban office buildings the weakest sector at a score of 48.

Moody's Red-Yellow-Green report scores markets on a scale of zero (weak) to 100 (strong) and described in traffic-light colors, with scores of zero through 33 identified as red, 33 through 66 as yellow and 67 through 100 as green.

"In the hotel sector overall, RevPAR is up by 8.4 percent year-over-year, and demand for new hotel rooms is expected to outpace supply by a strong 7.5 percent because of strong demand and a shallow supply pipeline," said Sally Gordon, vice president-senior credit officer with Moody's Structured Finance Group and author of the report.

"Community shopping centers remain the star commercial real estate product, with a composite score of 83--the highest of any property type," said Gordon. "Furthermore, the sector's strength is broad-based. Of the 50 markets covered, only three have growth in real personal income of less than 1 percent, and none is expected to see this income measure decline." Growth in real personal income is the principal variable used to project demand.

The multifamily score slipped from 80 fourth-quarter 2003 to 77 in first-quarter 2004, but the sector remains well within green territory and retains a favorable outlook, according to Gordon. …

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