Hotel Capitalization Rates Continue to Strengthen, According to USRC Hotel Investor Survey

COLUMBUS, OH--(Marketwire - Sep 13, 2011) - Despite economic volatility, a roller-coaster stock market, and fears of a double-dip recession, the Mid Year 2011 USRC Hotel Investment Survey indicates that overall investment parameters for both limited-service and full-service hotels have continued to become more aggressive. And perhaps equally important, anticipation of future ADR growth, closely correlated to hotel profitability, continues to improve. The current Mid Year 2011 survey clearly reflects expectations that the recovery is underway and on solid footing, despite recent headlines. More specifically, full-service capitalization rates moved lower by 50 basis points to 7.9%, and discount rates for both full-service and limited-service hotels continued to decline. As yield requirements lessened, anticipated growth (reflected by ADR expectations) continued to increase, even beyond the very healthy movement we saw in the last two survey periods, Winter 2011 and Mid Year 2010.

Full-service discount rates are now at their lowest level in survey history. Remarkably, they are now 10 basis points lower than the previous record low seen in the Winter of 2007 survey, prior to the economic slowdown of early 2008, and of course the accelerated economic crisis which emerged in September 2008.

Perhaps the most meaningful underlying result of the survey is the improving ADR expectations. The last three surveys had seen gradual improvement from the negative ADR projections seen in the 2009 surveys. But current ADR growth expectations are the highest levels seen since prior to the economic crisis of 2008.

The complete survey, including data on capitalization rates, discount rates, ADR 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 jwalker@usrc.com.