Magazine article Mortgage Banking

Survey: Hotel Markets Remain Volatile

Magazine article Mortgage Banking

Survey: Hotel Markets Remain Volatile

Article excerpt

Jones Lang LaSalle Hotels (JLL Hotels), Chicago, announced its latest Hotel Investor Sentiment Survey indicates many owners remain reluctant to bring their properties to the market because of depressed values and tight debt availability.

However, the survey said investor expectations lowered from leveraged internal rate of return requirements, dropping by 200 basis points from the previous survey. Respondents' expected going-in cap rates--initial yields--declined by 60 basis points.

Arthur Adler, managing director and chief executive officer at JLL Hotels, said the decline provided "a steadfast indication that risk perception is softening. This improving trend has been evident in several recent hotel transactions and is indicative of the more positive sentiment on operating fundamentals, the weight of equity capital in the market and the scarcity of quality hotel product available for acquisition."

Other industry analysts confirmed the trend. "Though this remains a challenging year, the hotel sector's recent increases in lodging demand are brisk, and with improving economic conditions, some operators are ready to refocus on increasing room rates," said Scott Berman, principal and U.S. industry leader of hospitality and leisure at PricewaterhouseCoopers, New York.

Alan Reay, president of Atlas Hospitality Group, Irvine, California, said he sees more interest from overseas buyers and real estate investment trusts (REITs).

"More sellers are bringing their hotels to market as they see a shortage of product and an abundance of buyers," Reay said. "We are seeing tremendous interest in trophy properties in gateway cities, such as San Francisco, Los Angeles, New York and Washington D.C."

Forecasts from Smith Travel Research (STR), Hendersonville, Tennessee, and PricewaterhouseCoopers' forecast for this year and 2011 reflect growth in occupancies, average daily rates (ADRs) and revenue per available room (RevPAR) similar to increases from 2003 to 2004.

Hotel values, ranging from select service properties to luxury hotels, also firmed during the past three to six months and provided a better understanding in value, Adler said.

Mark Lomanno, president of STR, said upper-end hotels will drive the industry's recovery. …

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