Hotel Valuation and Transaction Trends for the U.S. Lodging Industry June 2014 Steve Rushmore , MAI, FRICS, CHA srushmore@hvs.com - 1 -
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 - 2 -
Value Trend for a Typical U.S. Hotel 2004 2005 2006 Values peaked $65,000 $82,000 $99,000 Value Per Room in 2006 28% 26% 21% Percent Change 2007 2008 2009 Values bottomed out $95,000 $81,000 $56,000 Value Per Room in 2009 -4% -15% -31% Percent Change 2013 2010 2011 2012 Values recovered to 2006 peak level $65,000 $78,000 $94,000 $108,000 Value Per Room 17% 20% 21% 15% Percent Change Values increase at a slowing rate 2014 2015 2016 2017 2018 $122,000 Value Per Room $135,000 $142,000 $147,000 $148,000 13% 11% 5% 4% 0% Percent Change - 3 - Source: HVS/STR Hotel Valuation Index
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 - 4 -
Supply Growth Is Accelerating But Not Excessively Mortgage REITS Overactive Deregulation of Savings and Loans Real Estate Financing Boom but Minimal Construction Lending Gradual Supply Acceleration HVS Forecasts Continue to Reflect Slow Supply Growth - 5 - Source: STR and HVS
Annual Feasibility Studies Are Gradually Recovering 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 - 6 -
Supply Growth Will Be Gradual 250 y = 4318x + 84.117 R² = 0.6771 200 150 100 50 0 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% - 7 - Source: HVS/STR Hotel Valuation Index
Occupancy Levels Are Reaching Their Cyclical Peak Stabilized Occupancy 68.0% 66.0% 64.0% 62.0% 60.0% 58.0% Occupancy 56.0% 54.0% 52.0% 50.0% 48.0% 1986 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 - 8 - Source: HVS/STR Hotel Valuation Index
Hotel Values vs. Hotel Costs: When to Build and Buy? $160,000 $140,000 Build $120,000 $100,000 Value per Room Build Value $80,000 Cost $60,000 Buy $40,000 $20,000 $0 1987 1991 1995 1999 2003 2007 2011 2015 2018 - 9 - Source: STR and HVS
Impact on Value From Rising Interest Rates - 10 -
What Do These Hotel Value Trends Mean To Investors? US hotel value growth is moderating, however opportunities exist in individual markets Good time to refinance or sell either this year or in 2015 Better to build than to buy - 11 -
Projected Change In Value Per Room: 2013 - 2017 - 12 - Source: HVS/STR Hotel Valuation Index
HVI.HVS.Com - 13 -
Major Hotel Sales Transactions (Assets $10M+) - 14 - Source: Real Capital Analytics (RCA) and HVS
Prices Exceeding $1 Million Per Key Langham Place Fifth Avenue, Manhattan, NY $1,070,093 per key Park Lane Hotel, Manhattan, NY Calistoga Ranch, Napa Valley, CA $1,090,909 per key $1,100,000 per key - 15 - Source: HVS
Derived Cap Rates Remain Unchanged 2011 2012 2013 10% 9.5 9.3 9.2 9% 7.7 8% 7.4 7.4 7% 6.2 6.1 5.8 6% 5% 4% 3% 2% 1% 0% Select Service Full Service SS & ES Ltd. Service Limited Service & Extended Stay - 16 - Source: Derived From Hotels Appraised by HVS at Time Of Sale
Where To Buy, Sell And Build Buy Sell Miami Cleveland Tampa Detroit Orlando Atlanta Phoenix Build Anywhere you can get construction financing - 17 -
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 - 18 -
The Future Looks Good For The U.S. Hotel Industry - 19 -
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Thank You - 21 -
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