THE ANNUAL SURVEY OF LODGING INVESTMENT TRENDS AND CHALLENGES
"Hotel Real Estate: Floating Forward in a Fluid Market"
1) Hotel Real Estate - Floating Forward in a Fluid Market: Overall, the 2018 LIIC Survey indicates “business as usual,” and the big picture trend is that the current market is similar to 2017. On the positive side, the hotel transaction market is fluid; hotel assets are trading. Buyers and sellers are actively using solid hotel debt availability in a variety of forms to complete transactions. “Private Equity” and “Listed REIT’s” are predicted to dominate the purchase of Upscale to Luxury hotels, while “Small Private Buyers” and “Regional Owner/Operators” are projected to dominate the purchase of Economy to Upper Midscale hotels.
2) Trump is Good for Hotel Owners: How will Trump’s progressive tax reform bill affect hotel owners? 67% say positively, with 41% citing an increase in GDP growth, and 28% predicting a correlated increase in business travel. For the next 24 months, 70% believe in an economy that continues to trend upward.
3) Hotel Property Values Flat to Increasing Slightly: Over the next 12 months, 41% anticipate that lodging real estate values will be flat in comparison to 2017. However, the same size group (41%) forecast a slight increase in values (up to 5%). Favorite investment sector targets, Upscale (37%) and Upper Upscale (37%) are the darling sector categories for buyers today.
4) Top Three Threats to Your Hotel Investment:
I. New Lodging Supply: 78% of LIIC members cited new hotel supply as the current and dominant top investment concern. Do barriers to entry really exist?
II. Increasing Interest Rates: With interest rates increasing gradually, up to 100bps over the next 12 months, sellers need to understand the impact of rising rates on asset pricing for hotels they are looking to sell.
III. Low Unemployment (Availability of Labor): The impact on hotel NOI from not only rising labor costs but simply the availability of quality employees is worrisome to 49% of LIIC (up from 26% in 2017). 78% believe their hotels have been negatively impacted by the low availability of qualified employees.
5) Hotel Transactions for Calendar 2018: Negative Nellies constitute 35% of LIIC. These members forecast a decrease in the total dollar volume of U.S. hotel transactions in calendar 2018 relative to year-end 2017, and 27% believe volume will be flat. However, cheers to 29% of LIIC, who forecast dollar volume to increase up to 10%. The total number of assets forecasted to be sold by year-end 2018 is evenly mixed and inconclusive; 32% down, 30% flat and 29% up.
6) Hotel Debt - Impact of Increasing Interest Rates: Investors believe (67%) that increasing mortgage interest rates will have a slight impact on values, increasing overall cap rates up to 50 bps. Multiple LIIC members believe, in general, the market is still better for refinancing than selling. In action, 55% have recently elected to refinance instead of selling over the last year. Today, 49% believe the ideal refinance window has closed, but 37% still believe the window is open, with 68% of owners being “very likely” to refinance in the coming 12 months.
7) New Hotel Development Slowing? Relative to developing more new hotels, 60% of LIIC believe it is still a good time, “if you are selective about product and markets.” Respondents are putting their money behind their votes, with 81% of relevant LIIC members having new hotels actively under development. Interestingly, 63% do not believe it has become more difficult to secure construction financing. Worries include an increase in construction costs driven by tariffs on imported steel and aluminum; 38% of LIIC expect an increase of 2% to 4% coming soon.
8) Hotel Buyers Whining: Where’s the Beef? Quantity: 51% of investors believe that a “below average quantity” of hotels are available for purchase, closely followed by 25% at “average quantity.” Quality (desirability to purchase): 41% believe the overall quality of assets on the market is slightly worse than 2017, and 41% believe quality is stagnant with last year.
9) Scary Hotel Markets? LIIC members were asked which of the top 25 markets they “would not consider buying a hotel” in:
I. Nashville, TN (33%; up from 2nd place last year)
II. St. Louis, MO-IL (32%; up from 5th place)
III. Detroit, MI (30%; steady in 3rd)
IV. Norfolk/Virginia Beach (24%; welcome to top 5)
V. New York, NY (19%; dropping from 4th place)
Sleeper - where to buy? Denver! Not one vote against, time to buy in God’s Country.
10) Are Hotel Asset Packages Still Hot? Many sellers are wondering, do investors want and will they fundamentally pay a premium for packages of 5 or more assets? Interestingly, opinion is virtually split. 52% say “yes”, while 48% believe that the 2014 and 2015 package buying frenzy ship has sailed into the sunset.
LIIC Bonus Questions:
Looking forward, the “hotel investment illuminati” believe…
2) Trump is Good for Hotel Owners: How will Trump’s progressive tax reform bill affect hotel owners? 67% say positively, with 41% citing an increase in GDP growth, and 28% predicting a correlated increase in business travel. For the next 24 months, 70% believe in an economy that continues to trend upward.
3) Hotel Property Values Flat to Increasing Slightly: Over the next 12 months, 41% anticipate that lodging real estate values will be flat in comparison to 2017. However, the same size group (41%) forecast a slight increase in values (up to 5%). Favorite investment sector targets, Upscale (37%) and Upper Upscale (37%) are the darling sector categories for buyers today.
4) Top Three Threats to Your Hotel Investment:
I. New Lodging Supply: 78% of LIIC members cited new hotel supply as the current and dominant top investment concern. Do barriers to entry really exist?
II. Increasing Interest Rates: With interest rates increasing gradually, up to 100bps over the next 12 months, sellers need to understand the impact of rising rates on asset pricing for hotels they are looking to sell.
III. Low Unemployment (Availability of Labor): The impact on hotel NOI from not only rising labor costs but simply the availability of quality employees is worrisome to 49% of LIIC (up from 26% in 2017). 78% believe their hotels have been negatively impacted by the low availability of qualified employees.
5) Hotel Transactions for Calendar 2018: Negative Nellies constitute 35% of LIIC. These members forecast a decrease in the total dollar volume of U.S. hotel transactions in calendar 2018 relative to year-end 2017, and 27% believe volume will be flat. However, cheers to 29% of LIIC, who forecast dollar volume to increase up to 10%. The total number of assets forecasted to be sold by year-end 2018 is evenly mixed and inconclusive; 32% down, 30% flat and 29% up.
6) Hotel Debt - Impact of Increasing Interest Rates: Investors believe (67%) that increasing mortgage interest rates will have a slight impact on values, increasing overall cap rates up to 50 bps. Multiple LIIC members believe, in general, the market is still better for refinancing than selling. In action, 55% have recently elected to refinance instead of selling over the last year. Today, 49% believe the ideal refinance window has closed, but 37% still believe the window is open, with 68% of owners being “very likely” to refinance in the coming 12 months.
7) New Hotel Development Slowing? Relative to developing more new hotels, 60% of LIIC believe it is still a good time, “if you are selective about product and markets.” Respondents are putting their money behind their votes, with 81% of relevant LIIC members having new hotels actively under development. Interestingly, 63% do not believe it has become more difficult to secure construction financing. Worries include an increase in construction costs driven by tariffs on imported steel and aluminum; 38% of LIIC expect an increase of 2% to 4% coming soon.
8) Hotel Buyers Whining: Where’s the Beef? Quantity: 51% of investors believe that a “below average quantity” of hotels are available for purchase, closely followed by 25% at “average quantity.” Quality (desirability to purchase): 41% believe the overall quality of assets on the market is slightly worse than 2017, and 41% believe quality is stagnant with last year.
9) Scary Hotel Markets? LIIC members were asked which of the top 25 markets they “would not consider buying a hotel” in:
I. Nashville, TN (33%; up from 2nd place last year)
II. St. Louis, MO-IL (32%; up from 5th place)
III. Detroit, MI (30%; steady in 3rd)
IV. Norfolk/Virginia Beach (24%; welcome to top 5)
V. New York, NY (19%; dropping from 4th place)
Sleeper - where to buy? Denver! Not one vote against, time to buy in God’s Country.
10) Are Hotel Asset Packages Still Hot? Many sellers are wondering, do investors want and will they fundamentally pay a premium for packages of 5 or more assets? Interestingly, opinion is virtually split. 52% say “yes”, while 48% believe that the 2014 and 2015 package buying frenzy ship has sailed into the sunset.
LIIC Bonus Questions:
Looking forward, the “hotel investment illuminati” believe…
- LIIC is concerned about Tom Brady’s Health! 56% believe he should retire now and save his brain and marriage to Giselle. On the other hand, 20% selfishly want him to continue as “he is still peaking professionally.”
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- When staying at a hotel on a multiple day business trip, would you “pass” on daily room cleaning? 60% yes, 40% no. Broken down: 32% yes, for additional membership rewards points; 14% yes, for a 5% discount on room rate; 14% yes, for no discount because protecting the environment is the only reward I need; 19% no, not sanitary and 21% no, I want a hotel person to check daily to make sure I am alive.
- Will Trump be re-elected as President in 2020? 16% say “yes,” MAGA; 65% report “no,” and 19% say “not applicable since he will be impeached prior to the election.” But time will tell…only 13% correctly predicted his win in 2016!
Past LIIC © Top 10 Lists
LIIC TOP 10 - Hotel Real Estate: Forecasting Clear Skies with Some Clouds and Slightly Cooling Temperatures - May 2017
LIIC TOP 10 - Hotel Investors: Active yet Cautious in Underwriting and Pricing - May 2016
LIIC Top 10 - Carpe Diem: Hotel Investors Bask in Rare & Glorious Sunshune - May 2015
LIIC Top 10 - The Window is Wide Open and It’s Beautiful Outside; Deja Vu 2005? - May 2014
LIIC Top 10 - LIIC Top 10 issues - May 2013
LIIC Top 10 "Hotel Investors Sluggishly Move Ahead, Despite Worries and Uncertainty about US Economy" - May 2012
Hotel values, cap rates, deals and recovery - Hotel News Now, May 2011
LIIC's Top 10- Hotel & Motel Management, May 7, 2009
LIIC identifies growth, labor as top issues - Hotel & Motel Management, March 3, 2008
Regulations, Politics Fill Leaders' Plates - Hotel & Motel Management, March 5, 2007
Think Tank tabulates top issues - Hotel & Motel Management, July 19, 2006
Property prices top issue for Think-Tank members - Hotel & Motel Management, June 6, 2005
LIIC's Top 10 - Hotel & Motel Management, June 7, 2004
Roundtable Participants Take Industry Pulse - Hotel & Motel Management, August 2003
LIIC TOP 10 - Hotel Investors: Active yet Cautious in Underwriting and Pricing - May 2016
LIIC Top 10 - Carpe Diem: Hotel Investors Bask in Rare & Glorious Sunshune - May 2015
LIIC Top 10 - The Window is Wide Open and It’s Beautiful Outside; Deja Vu 2005? - May 2014
LIIC Top 10 - LIIC Top 10 issues - May 2013
LIIC Top 10 "Hotel Investors Sluggishly Move Ahead, Despite Worries and Uncertainty about US Economy" - May 2012
Hotel values, cap rates, deals and recovery - Hotel News Now, May 2011
LIIC's Top 10- Hotel & Motel Management, May 7, 2009
LIIC identifies growth, labor as top issues - Hotel & Motel Management, March 3, 2008
Regulations, Politics Fill Leaders' Plates - Hotel & Motel Management, March 5, 2007
Think Tank tabulates top issues - Hotel & Motel Management, July 19, 2006
Property prices top issue for Think-Tank members - Hotel & Motel Management, June 6, 2005
LIIC's Top 10 - Hotel & Motel Management, June 7, 2004
Roundtable Participants Take Industry Pulse - Hotel & Motel Management, August 2003