Hotel Valuation and Transaction Trends for the U.S. Lodging Industry - - PowerPoint PPT Presentation

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Hotel Valuation and Transaction Trends for the U.S. Lodging Industry

June 2014

Steve Rushmore, MAI, FRICS, CHA

srushmore@hvs.com

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You can download a copy of my Presentation and follow along with me at

www.hvs.com/nyu

This presentation is compatible with Mobile Device

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Value Trend for a Typical U.S. Hotel

2004 2005 2006

Value Per Room Percent Change

28% 26% 21% 2007 2008 2009

Value Per Room Percent Change

• 4%
• 15%
• 31%

Source: HVS/STR Hotel Valuation Index 2014 2015 2016

Value Per Room

$122,000 $135,000 $142,000

Percent Change

13% 11% 5% 2017 2018 $147,000 $148,000 4% 0% 2010 2011 2012 2013

Value Per Room

$65,000 $78,000 $94,000

Percent Change

$108,000

Values peaked in 2006 Values bottomed out in 2009 Values recovered to 2006 peak level Values increase at a slowing rate

21% 20% 17% 15% $56,000 $81,000 $95,000 $99,000 $82,000 $65,000

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Why Is Hotel Value Growth Slowing?

• Supply growth is accelerating
• Occupancy levels are reaching their cyclical peak
• Hotel values exceeding replacement cost
• Inevitable rise in mortgage interest rates

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Source: STR and HVS

Mortgage REITS Overactive Deregulation of Savings and Loans Real Estate Financing Boom but Minimal Construction Lending Gradual Supply Acceleration

Supply Growth Is Accelerating But Not Excessively

HVS Forecasts Continue to Reflect Slow Supply Growth

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Annual Feasibility Studies Are Gradually Recovering

50 100 150 200 250 2005 2006 2007 2008 2009 2010 2011 2012 2013

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Supply Growth Will Be Gradual

y = 4318x + 84.117 R² = 0.6771 50 100 150 200 250 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%

Source: HVS/STR Hotel Valuation Index

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Occupancy Levels Are Reaching Their Cyclical Peak

48.0% 50.0% 52.0% 54.0% 56.0% 58.0% 60.0% 62.0% 64.0% 66.0% 68.0% 1986 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Stabilized Occupancy

Occupancy

Source: HVS/STR Hotel Valuation Index

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Hotel Values vs. Hotel Costs: When to Build and Buy?

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000

1987 1991 1995 1999 2003 2007 2011 2015 2018

Value per Room

Value Cost

Build Buy Build

Source: STR and HVS

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Impact on Value From Rising Interest Rates

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What Do These Hotel Value Trends Mean To Investors?

• US hotel value growth is moderating, however
• pportunities exist in individual markets
• Good time to refinance or sell either this year or in 2015
• Better to build than to buy

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Projected Change In Value Per Room: 2013 - 2017

Source: HVS/STR Hotel Valuation Index

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HVI.HVS.Com

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Major Hotel Sales Transactions (Assets $10M+)

Source: Real Capital Analytics (RCA) and HVS

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Calistoga Ranch, Napa Valley, CA $1,100,000 per key

Prices Exceeding $1 Million Per Key

Park Lane Hotel, Manhattan, NY $1,090,909 per key

Langham Place Fifth Avenue, Manhattan, NY $1,070,093 per key

Source: HVS

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Derived Cap Rates Remain Unchanged

Source: Derived From Hotels Appraised by HVS at Time Of Sale 6.1 7.7 9.5 5.8 7.4 9.3 6.2 7.4 9.2 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Full Service SS & ES

• Ltd. Service

2013 2011 2012 Select Service & Extended Stay Limited Service

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Buy Miami Tampa Orlando Atlanta Sell Cleveland Detroit

Where To Buy, Sell And Build

Build

Anywhere you can get construction financing

Phoenix

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Summary of Findings - U.S. Hotel Industry

► Hotel values continue to grow but at a slowing rate ► The future of mortgage interest rates – the big unknown ► Don’t worry about future supply growth – the lack of

construction financing is likely to continue

► Ideal conditions for another strong transaction year –

activity is expected to significantly exceed that of 2013

► Availability of debt will continue, with lender competition

putting pressure on interest rates and loan-to-value ratios

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The Future Looks Good For The U.S. Hotel Industry

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Thank You