Hotel investment is hot
Rising profits, limited supply and improved access to cash, make this an excellent time to invest in the U.S. hotel industry, according to PKF Consulting?s Hospitality Investment Survey.
Due to limited supply growth, revenue per available room (RevPAR) is forecast to grow between 6 to 7 percent in most major U.S. lodging markets, the survey said. Given the strong outlook for revenue growth, net operating income (NOI) is forecast to increase by more than 10 percent through 2015.
Interest rates for hotel development and acquisition remain at historically low levels and the dividend yield from a hotel investment looks very attractive given the risk, researchers found. As special servicers and lenders work out their troubled lodging assets, fewer distressed properties remain to have their loans modified or sold. The limited number of quality hotels available for sale is causing aggressive bidding.
The report said overall capitalization rates fell to 8.38 percent, a 35 basis point decline compared to the 2012 survey results and the lowest recorded cap rate since the inception of the survey. This year?s survey also indicated that discount rates for hotels decreased 37 basis points to 11.05 percent.
Despite the positive outlook for industry performance, many survey participants anticipate a shorter holding period. These respondents fear increases in supply and potential upward pressure on interest rates.
The sentiment of the survey indicates that financing, though not abundant, is becoming more available and affordable. Many survey respondents said new construction financing is becoming more available in second- tier and tertiary markets.
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