Mineola, NY (October 15, 2010) Steve Rushmore, president and founder of HVS, the leading global hospitality consulting and services firm, has announced the publication of the 2010 U.S. Hotel Valuation Index. The Hotel Valuation Index (HVI) tracks hotel values in 51 major markets and the United States as a whole.
As Rushmore explains, “The HVI looks at hotel supply, demand, occupancy and rate trends for each market area and creates an income and expense projection based on local operating costs. It then capitalizes the resulting net income by an appropriate capitalization rate, which produces an estimate of value for a typical hotel in that market. The HVI tracks historical hotel values back to 1987 and projects them out to 2015. This tool shows the high and low points of each cycle, the velocity of the declines and recovery, and the overall value volatility of each market. HVS is the only hotel consulting firm that provides value trends for individual markets, which compared to REVPAR data, are significantly more useful to hotel owners, operators, and lenders.”
According to co-authors Michael Pajak and Neel Lund, “We see an optimistic outlook for the industry. The supply pipeline appears to be limited and will likely be severely restricted over the near- to mid-term, given the limited financing available for new development. Shifting segmentation and the resurgence of the corporate traveler became the dominant trends over the second and third quarters of 2010, although same-guest pricing power is still fragile.”
The co-authors continue, “The transaction side of the business has increased moderately from the nadir witnessed in 2009 as numerous high-profile assets have come to market, and fierce bidding is commonplace among cash-rich buyers. Despite downward revisions to GDP for year-end 2010 and the acknowledgement of a weaker recovery by top economic officials, the lodging sector appears coordinated in its efforts to improve average rate as occupancy trends upward.”
Overall, with the potential growth of RevPAR, the sizeable amount of acquisition capital waiting for hotels to come to market, and the pent-up desire of sellers to put their properties on the market, “we believe that U.S. hotel values bottomed out in 2009 and that a healthy recovery will occur in 2010,” states Rushmore. “This recovery will gather momentum in subsequent years, eventually achieving substantial levels between 2011 and 2013, attributable to the limited potential for overbuilding and to recovering RevPAR fundamentals.”
Based on the HVI, U.S. hotel values peaked in 2006 at $100,000 per room. The low point during the recent downturn occurred in 2009, with values dropping to $56,000 per room. By 2012, hotel values should recover to 2006 levels and continue to increase from that point. These data illustrate that buyers need to stop waiting and start buying immediately and how this strategy will pay off with significant value growth over the coming years.
To obtain a free copy of the 2010 Hotel Valuation Index, click here. For more information or to answer questions about the 2010 U.S. HVI, contact co-authors Michael Pajak at [email protected] or Neel Lund at [email protected].