Hotel Metrics Reach Historic Highs in Second Quarter

                                                                                                          Jul 27, 2015

U.S. hotel industry metrics continued on a strong streak in the second quarter of the year, with increases in both occupancy levels and average daily rates (ADRs), as well as revenue per available room (RevPar) growth that hit double digits in some markets.

According to data from research firms Moody’s Investors Service and Smith Travel Research, RevPar on a national basis increased 7.2 percent year-to-date. A separate report by RBC Capital Markets claims that lodging REITs posted an average RevPar growth of 6.5 percent, with strong markets such as Seattle experiencing RevPar growth of more than 10 percent.

Margaret Taylor, senior vice president with Moody’s, said in a statement that the strong industry fundamentals bode well for 2015 earnings and should offset a drag from foreign exchange transactions.

“We expect the (RevPar growth) will continue for the remainder of 2015 and are affirming our forecast for 8 percent to 9 percent EBITDA growth for the industry,” she said.

Hotel occupancy has been trending upward as well, growing 2.3 percent to hit 65.2 percent, the highest occupancy rate reached during this century and a significant jump from 2009’s 55 percent, according to Moody’s. Improving occupancy has pushed up rates, and the U.S. hospitality industry’s ADR is at historic highs as well, increasing 4.8 percent to about $100 per room.

Lauro Ferroni, senior vice president in the hotels and hospitality group of commercial real estate services firm JLL, says the higher the ADR is leading to higher property valuations in the hotel sector. Ferroni adds that the three main reasons hotels are doing so well right now include the increase in international travel, demand for group travel and the small amount of new supply added to the market. For example, overseas passenger traffic to the U.S. from non-U.S. citizens has increased 3.5 percent so far this year, according to the National Travel & Tourism office.

“With group demand, we’re seeing a much longer lead time from people booking rooms,” Ferroni says. “People who are making the decisions have more visibility on the economic outlook, and are comfortable committing 150 people to a meeting in early 2017, for example. A year ago, that person would have probably waited until only six-to-nine months out.”

Supply is another factor. Drew Noecker, vice president with CBRE Hotels, says there was a dearth of available construction financing following the recession, resulting in few new hotels under construction. Now that the market has shown improvement, there are new properties in the pipeline. Whereas demand stands at about 3.3 percent, supply will likely increase to 2 percent in 2016, according to Moody’s, and may lead to a deceleration in occupancy and RevPar growth.

“In the future we will normalize and come back in line with historic norms, but you have to remember we’ve been experiencing tremendous growth the past three to four years,” Noecker says. “Over the next 12 to 18 months, we should keep growing with limited new supply.”

Noecker says the industry’s resurgence has brought in a lot of new hotel investors, a factor that should only increase values.

“There are larger real estate companies that didn’t event target hotels before that have entered the marketplace,” he says. “The owners are the ones who will benefit, not only for their investment, but also so they can reinvest and renovate their properties, and realize rate premiums.”

Room by Room, Hotel Owners Build Up RevPAR


By Erika Morphy | National

WASHINGTON, DC—When Hersha Hospitality Trust acquired Washington DC’s St. Gregory Hotel last month for $57 million, it would have been understandable to assume the REIT wouldn’t be investing much in upgrades. After all, the previous under had competed a renovation of its rooms in Fall 2014. But no — Hersha Hospitality Trust plans to reposition the hotel’s restaurant, bar and lobby.

Ditto when DiamondRock Hospitality Co. acquired the fee simple interest in Sheraton Suites Key West for $94 million, or $511,000 per key. Key West, FL, is the highest RevRAP market in the US, CEO CEO Mark Brugger said at the time of the deal’s announcement.

But more, apparently, can be wrung from this asset. DiamondRock believes that as the hotel is currently flagged it is generating profit margins that are almost 1,000 basis points lower than DiamondRock’s other independent hotel in the market. Once the REIT completes a $5 million planned capital improvement program, it expects the hotel’s profit margins will increase by approximately 500 basis points.

These two examples show the precise calculations hotels are making when it comes to renovations these days. This is not to say that in the past hotel owners scribbled back-of-the-envelop numbers to decide whether to renovate and then merrily set forth on building. It is, though, more pronounced now as the hotel industry rushes to catch up with the other asset classes that have recovered from the recession.

“This is definitely something we are seeing more of as the industry recovers from the downturn,”Tom Baker, managing director of Savills Studley ‘s Professional Hospitality Group,

“During the downturn a lot of owners pulled back in terms of capital expenditures and now that the recovery is in place they are looking for opportunities to tweak product to increase RevPar penetration,” he said.

And the calculations about what will drive RevPAR are very precise, ranging from increasing the suite count in a hotel because they run higher than the average rooms or bumping up the amenities, such as putting in new TVs in the room or upgrading the bar.

“Anything that the owner deems the customer is willing to pay a bit more money for,” Baker says.

While new TVs for a property may not seem that much on the grand scale, it can make a difference, Baker adds. “By increasing a hotel’s RevPar you also bring up a portfolio’s RevPar.”

And an increasing portfolio RevPar is definitely a metric that analytics like, he says.

Certainly CEO Brugger described in painstaking detail the improvements the REIT has been making in various properties in its portfolio in DiamondRock’s last earnings call.

A sample: The REIT fully renovated approximately 90 guest rooms at the Boston Hilton, that sell for a $30 to $50 premium as a premium room type.

In Chicago, it renovated at one of its properties that top 5 floors, with 175 guestrooms, plus all 25 suites. It now charges a $35 premium for these upgraded rooms. The REIT is also adding eight incremental rooms at its New York City Courtyards and four rooms at the DC Westin.

Hotels Investment’s Roller Coaster Ride


By Sule Aygoren | National

NEW YORK CITY—This week’s focus of’s 15th Anniversary program is on investment trends. Today, specifically, the focus is on hotels. In the Spotlight story this morningexecutive editor Natalie Dolce takes a look at the lodging sector’s performance since GlobeSt started covering it in 2000.

Lodging has certainly traversed a long course since then, having gone from being considered one of the weakest asset classes in commercial real estate to being one of the most sought-after places to pot capital—twice in the past decade and a half. Breaking down the numbers for the sector, these trends become clear, as do the players behind the most action in the marketplace.

Using data from Real Capital Analytics, we present below the trends that hotel volume and pricing has taken since 2002, the latest figures available from the locally based research and analytics firm. We also look at the top 15 buyers of hotel properties filtered by the total number of properties acquired, total number of guestrooms acquired and total dollar volume of acquisitions since 2001.

At the end of this week, we will bring together all the data and examine which firms have been the most active since 2001, and which, if any, continue to dominate the commercial real estate scene.

All information in the charts below was obtained from Real Capital Analytics.


After rising to $44.9 billion in the second quarter of 2006, hotel investment volume dipped 4.2% to $38.3 billion in the first quarter of 2007 before peaking at $80.8 billion at the end of 2007, representing a 600% year-over-year change in activity. Sales fell 72.3% at the end of 2009 to the trough of $3.2 billion, but have been steadily rising since then. Still, with volume at $45.4 billion as of midyear 2015, most would agree that the sector still has some runway yet.


Cap rates have plummeted and per-unit pricing has skyrocketed for hotel assets in the US. Caps rose to 9.4% in the third quarter of 2009 from the previous low of 8.8% at the beginning of 2008, as pricing fell from $115,000 per unit to $76,000 in the same time frame. That trend drastically reversed in the years that followed, as cap rates plummeted to 7.9% at year-end 2011 after prices escalated to $147,000 per guestroom.

Per-unit pricing declined again in third-quarter 2012 to $112,000, but picked up steadily since then, reaching $158,000 by midyear 2015. Thanks to improved performance, however, caps have yet to reach a record low again. ending this year’s second half at 8.2%,


It’s of little surprise that when it comes to hotel investment, Blackstone topped the list of most active investors across all three fields.

Good Times in Hotel to Persist, Despite Other Lodging Options

By Natalie Dolce | National

NEW YORK CITY—In September of 2000, Jason Ader, a then lodging analyst for New York-basedBear Stearns (which has since failed as part of the global financial crisis and recession and was subsequently sold to JPMorgan Chase), warned investors that surging oil prices, the weak Euro and other signs of economic trouble to come would soon adversely impact the travel and hospitality industries, leading to decreased hotel occupancy rates.

The warning came amid Bear Stearns’ own decrease in net income for the third quarter of 5.7%. While the company’s revenue rose 6% and its earnings per share also rose, the company had 9% fewer shares than last year’s third-quarter because of stock buyouts, and its investmentbanking revenues decreased 11%. Stock shares, however, had gone up 41% since late July of that year. Bear Stearns, at the time, was becoming one of an increasingly shrinking number of mid-size firms here in New York, as the trend in takeovers was growing.

At the time, Ader said of the lodging industry that, while he had upgraded the lodging sector in January and the Bear Stearns Large Cap Hotel Index had risen more than 25% since then, the industry may top out. He explained, “The lodging industry is very dependent on the overall economy and if there is any slow down it won’t be long before it trickles down to the hotels’ bottom line.”

That was a look at 15 years ago when Bear Stearns wasn’t ready to pull the plug yet on the hotel industry, but it had its hands on the chord.

Fast forward to today and according to a recent article, the hotel business is booming—for the fourth straight year. R. Mark Woodworth, senior managing director at PKF Hospitality Research, a CBRE company, tells that 2014 was 2014 was another year of consistent, strong performance for the US hotel industry.

According to STR Inc., demand grew at five-times the level of supply, and the national occupancy reached 64.4%, a level last seen in 1996, he says. “Growing scarcity on a greater number of nights during the year enabled hotel managers to achieve a 4.5% increase in average daily rate and a lift in Revenue per Available Room of 8.2%.”

In aggregate, Woodworth says, these strong fundamentals reveal that the average US hotel studied by PKF Hospitality Research achieved a 12.3% increase in net operating income during 2014. “This marks the fourth consecutive year of profit growth in excess of 10%.”

And what does the future hold? Woodworth forecasts the trend to continue through 2016.

“This six-year period (2011-2016) of continuous double-digit gains on the bottom line will be the longest such streak for the nation’s hotels since PKF began tracking the industry in 1937,” he says.

According to STR, lodging demand grew by 3.4% through May 2015 while supply expanded at a 1% annual rate. As a result, occupancies jumped by 3.4% to a 63.6% level, room rates increased by 4.7% and Revenue per available room grew by another 7.2% during the initial five months of the year.

Woodworth tells that the data reveals that “the traditional headwinds to industry success (a strong U.S. dollar, fluctuating oil prices and below-average economic growth) have been relatively benign during this industry cycle. The recent industry performance is perhaps even more remarkable when considering the creation and expansion alternative lodging options, most notably Airbnb have occurred during this run-up to a record industry occupancy level.”

There are several factors that suggest the good times will persist for at least another few years, if not longer, he explains.

“The development pipeline is one-third smaller than it was at this time in the previous cycle, thus indicating that the threat of too much new construction too soon is not a concern this time around in the vast majority of domestic markets.”

Another factor he points to includes “Tighter underwriting standards from traditional industry lending sources, escalating construction costs and a scarcity of attractive lodging brands in many locations supports the belief that demand growth out-pacing the lift in supply will likely persist for at least the next two to three years.”

Lastly, Woodworth pointed out that “the two components of economic growth that correlate most closely with changes in lodging demand—business spending and investment and consumer spending—are expected to realize accelerated growth in the years ahead, thus suggesting continued favorable increases in lodging demand.”

Projecting forward, he adds, “should the industry suffer yet another catastrophic event, or perhaps experiences a downturn brought on by a “more normal” economic contraction, the severity of the downside scenario will be mitigated by the premium occupancy levels currently being achieved.”

For the follow-up story, featuring a closer look at the data and charts illustrating the trend, click here.

New name, strategy for Supertel Hospitality

Supertel’s name change to Condor Hospitality Trust was more than a simple rebranding exercise, the company’s CEO Bill Blackham told HNN.

NORFOLK, Nebraska—There’s more to Supertel Hospitality’s name change to Condor Hospitality Trust than a simple rebranding exercise, according to President and CEO Bill Blackham.
At the core of the matter is a fundamental shift in strategy that will see the real estate investment trust’s portfolio evolve from one focused on economy and midscale hotels into one focused more on premium, select-service and extended-stay brands, he told Hotel News Now on Wednesday.
Further investment criteria include:
  • primarily in the 20th through 50th MSAs;
  • less than 10 years in age; and
  • investment between $15 million and $20 million.
“The name change was really more to get identification for the company in its new strategic direction,” Blackham said.
Signaling that change to the broader investment community is important, he added. With a new acquisition profile should come more value for shareholders, which should continue pushing shares of the company well above the minimum threshold of $1 on the Nasdaq, he said. The company will soon change its stock symbol to CDOR.
Supertel shares are up 17.3% year to date as of Thursday morning. Shares are trading for $2.71. Blackham took over as president and CEO on 3 March.
The company previously faced the threat of delisting from the exchange for falling below $1. That’s ancient history, Blackham said.
“One of the things that we strive to do in the business today is always to be regulatory compliant, be that (with the U.S. Securities and Exchange Commission) or (Nasdaq) exchange compliant,” he said. He said that with the company’s new direction and growth goals, “our hope is that the share price improves so that delisting shouldn’t be an issue.”
The CEO is eyeing an enterprise value in excess of $1 billion, which is the sweet spot for publically listed REITs.
There are advantages to be gleaned at that level, Blackham said—from reaping enough revenue to efficiently managing general and administrative costs to being large enough to attract institutional interest.
“It’s not an official mission—not something that we’re stating officially, ‘We’re going to do this.’ My personal mission is to get us past that threshold in a reasonable period of time so that we can continue to grow and attract capital,” he said.
The ship has sailed
The ship already is being steered in that new direction.
Condor on Wednesday announced it would acquire a 116-room SpringHill Suites by Marriott in San Antonio, Texas; a 142-room Hotel Indigo adjacent to the Hartsfield-Jackson Atlanta International Airport in Atlanta; and a 120-room Courtyard by Marriott in Jacksonville, Florida, for total consideration of $42.5 million.
Funding those and future deals will be capital recycled from the disposition of existing non-core assets.
With 48 hotels in 19 states as of press time, that process is dependent on the transaction market. Not only must Condor executives push for the right sale prices for existing assets, but also they must find the right acquisition costs for new assets.
It’s a delicate balance, Blackham said.
“The markets have improved. There are a much larger number of buyers interested in purchasing economy and midscale hotels today,” he said. “My objective has to be to get the best possible price so that we’re maximizing shareholder value. If you try to do that too rapidly, you may get into a situation where you don’t necessarily achieve that objective.”
When pressed, Blackham said he thinks he can transform the portfolio in one to two years.
The sooner Condor’s portfolio includes those higher-end select-service hotels the better, he added. They are typically more profitable, have better margins and are ultimately more valuable than Supertel’s old asset mix.
It’s also much easier to achieve that enterprise value of $1 billion with 50 hotels valued at $20 million than it is with 400 hotels valued at $2.5 million, Blackham said, noting the obvious efficiencies of scale.
Timing the cycle
Such wholesale changes might be deemed risky with an inevitable downturn looming over the horizon. Blackham thinks there’s still plenty of runway left to see Condor take flight.
“You have to have reasonable expectations that there still are (revenue-per-available-room) gains in the specific geographic markets that you’re considering investing capital into,” he said.
“You also have to believe there is still runway left in this economic expansion. We believe we are not at the top of the economic cycle,” Blackham continued. “And the markets we are interested in acquiring hotels in still have runway left to grow RevPAR. Therefore, there will be higher operating income, which will translate into higher value for the properties.”
He has reason to push for those higher values. Blackham acquired 5% of Supertel’s common stock when he joined the company in March.
“What I’m doing is something that I truly believe in with my own pocketbook,” he said. “The direction we’re going is something that I’m perfectly aligned with.”

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2015 Trends® in the Hotel Industry

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Five Key Takeaways – 2015 NYU International Hospitality Industry Investment Conference

Encouraging news about hotel demand, investment, and new supply inspires optimism at this year’s hospitality conference.

Keynote speakers and workshop panelists at the 2015 NYU International Hospitality Industry Investment Conference, held June 1 and 2 at the New York Marriott Marquis, highlighted positive industry fundamentals that support a very optimistic outlook for the hotel industry. The tide of optimism spread through some 2,300 attendees from every corner of the industry. Increasing hotel supply and rising interest rates remain the most conspicuous potential stumbling blocks in the current economic cycle. Concerns, however, were all but assuaged by encouraging presentations from some of the industry’s most prominent figureheads.

Capital Market Trends

Speakers and delegates noted an abundance of low-cost debt and equity sources pursuing hotel investments across asset classes and markets. Foreign investors seeking a safe haven from turmoil and risk abroad are increasingly turning to U.S. commercial real estate such as hotels as a source of relatively stable and strong yields. Meanwhile, domestic private equity funds continue to seek stronger returns by venturing into secondary and tertiary markets and are more willing to take on valueadded and repositioning opportunities. Furthermore, general commercial and high-net worth investors are attracted to the hotel sector’s reasonably strong yields compared to other commercial classes of real estate.

Within the debt markets, financing for existing assets is readily available from a variety of sources, including institutional lenders, private equity funds, CMBS markets, and community lenders. Experts in this field reported that debt terms are increasingly favorable, with loan-to-value ratios for first mortgages typically falling between 65% and 75%. Interest rates remain low, particularly for larger single-asset and portfolio loans. Although rates are widely expected to rise over the next 12 to 18 months, most increases should not negatively affect hotel values and could be offset by decreasing equity yield requirements. Construction lending is reportedly available, though on a more limited basis than debt for existing properties. Finding loans for new hotel construction is most challenging for middle-market deals; that is, those that fall somewhere between the regional owner-operator working with a community-based lender, and major development groups with ties to institutional debt sources

Limited Supply Growth

For the majority of U.S. markets, the aforementioned factors influencing construction financing, as well as rising construction costs, are expected to keep supply growth in check in the near term. Some markets, including New York City and Houston, are already experiencing the impact of new supply growth outpacing that of demand. But these are isolated cases. For the time being, new construction is predominantly of limited- and select-service hotels with relatively small room counts (fewer than 200 keys). While these types of developments may affect individual tertiary markets and Suburban submarkets, overall supply increases in most major MSAs, and the nation as a whole, should remain at manageable levels.

Demand Fundamentals Are Strong

The short- and long-term outlook for travel and tourism demand, both within the U.S. and around the globe, remains positive. Domestically, strong corporate profits continue to boost transient commercial travel and are finally beginning to revive the meeting and group segment. Meanwhile, a robust stock market and the recovery of wealth underpin strengthening demand for transient upscale and luxury accommodations. Furthermore, lower gas prices and modest wage increases are improving discretionary spending among the middle class, with positive implications for overall leisure travel. Moreover, recent improvements in U.S. visa policies, along with increased international travel promotion by the U.S. government, are expected to bring more tourism demand from abroad. The great expansion of middle or so-called “commercial” classes of developing nations such as China, India, and Brazil should bring more travelers to international markets, including the U.S.

Evolution of the Guest Experience

Guest preferences are altering the food and beverage offerings at hotels. Outside of the major urban markets, full-service hotel operations face a particular challenge. While beverage departments have potential to generate profits, food department deficits were reported to put some hotels in the red. This, among other factors in a changing hotel climate, has raised interest in select-service brands, as well as full-service “light” concepts such as DoubleTree by Hilton.

Technology continues to change the hotel guest’s experience, influencing everything from marketing to booking, from a hotel stay to post-trip reflections. According to Cyril Ranque, President of Expedia Lodging Partner Services, 90% of people who booked online in 2014 either booked or searched for hotel rooms using a mobile device or a tablet. The advance of new technologies is further driven by younger travelers’ desire for direct access and greater efficiency when it comes to hotel booking, checkin, and services. The implementation of mobile check-in, better and complimentary Wi-Fi service, service automation, and increased participation on social media sites all illustrate this trend. Experts noted, however, that this push for more advanced technology must be balanced by personalized, attentive service from hotel staff. As Stephen Wynn stated during his presentation, “it comes down to two words: Guest Experience.”

The Up-Cycle Continues

HVS expects supply and demand for the U.S. hotel industry to remain in equilibrium through this year and next, putting the industry on strong footing into at least early 2017. Investors at the NYU conference sounded more knells of optimism, shedding light on a variety of financing options for hotel transactions and new builds. This historically cyclical industry has already witnessed several years of sustained growth, but developers, owners, educators, and experts at the conference showed no concern about imminent decline. On the contrary, the fundamentals supporting the current upward trend remain strong, which should result in positive results for U.S. hotels well into the next two years.

Survey shows shifts in US travel habits


MMGY Global released its 2015 “Portrait of American Travelers” survey revealing several shifts in the travel habits of Americans.

According to the study of 2,832 U.S. adults, travelers are increasingly migrating from OTAs when making bookings and heading directly to travel brand sites to both research and book travel at a substantially higher rate than in previous years. Only 58% of travelers obtained travel information from an OTA during the past year, down significantly from the 84% who did so in 2014.

Millennials are increasingly interested in “staycationing,” with 55% taking a vacation close to home opposed to traveling a greater distance during the past year. This figure is up 14% from 2014 and 23% from 2013.

Affluent travelers — those with an annual household income over US$150,000 — are increasingly turning to travel review sites for advice and recommendations about travel.

Shared travel services are gaining popularity with all generational groups. According to the survey, 74% of Baby Boomers and 72% of GenXers now use shared services and would be interested in doing so again, just slightly less than the 80% of Millennials.

“We were surprised to find such significant shifts in travel preferences in just one year,” said Steve Cohen, vice president of insights for MMGY Global. “In addition, the survey revealed several unexpected trends across generational groups. Clearly the industry is in a state of flux, as the way people view and make decisions regarding travel is evolving at a much faster pace than in previous years.”

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PWC: Hotel Occupancy Continues to Surprise in 2015

US Average Daily Rate Growth Expected to Accelerate in 2016


NEW YORK, May 20, 2015An updated lodging forecast released today by PwC US expects another year of solid revenue per available room (“RevPAR”) growth in 2015, with a stronger-than-previously-expected increase in occupancy levels, offset by softer than anticipated growth in room rates. Despite weak U.S. economic performance driven in part by unseasonably harsh winter weather conditions, the U.S. lodging sector registered solid demand performance during the first quarter of 2015, with a year-over-year increase in RevPAR of 8.0 percent, and increasing demand levels driving RevPAR increases to a larger extent than previously anticipated. PwC expects this positive momentum in demand to continue for the remainder of 2015, supporting a RevPAR increase of 7.0 percent in 2015. In 2016, PwC expects RevPAR to grow 6.1 percent, driven almost entirely by average daily rate (“ADR”).

The estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers, LLC in April and historical statistics supplied by STR and other data providers. Macroeconomic Advisers expects real gross domestic product (“GDP”) to increase 2.8 percent in 2015, followed by a 2.5 percent increase in 2016, measured on a fourth-quarter-over-fourth-quarter basis.

Based on this analysis and recent demand trends, PwC expects industry occupancy in 2015 to reach levels not seen since 1981, with a number of factors contributing to the continued increase in these levels including the expansion of online distribution channels, which have helped hotel operators fill rooms during more off-peak periods. Average daily rate growth is expected to remain somewhat controlled for the balance of this year partly due to the impact of the increased value of the U.S. Dollar, which is expected to restrict the level that hotel operators are able to raise rates, primarily in certain gateway markets that cater to inbound international leisure visitors. Supply growth is starting to get more meaningful, and is expected to accelerate to 2.2 percent in 2016, with the increase in available hotel rooms exceeding the long-term average of 1.9 percent for the first time since 2009. As a result, while occupancy levels are expected to begin to stabilize, these peak levels, coupled with the absence of this year’s drag from the U.S. Dollar, is expected to support an average daily rate-driven RevPAR increase of 6.1 percent. 

With robust travel activity in the U.S., both group and transient demand continue to exhibit positive momentum contributing to occupancy levels not seen in the last 30 years,” said Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC. “Average daily rate growth has lagged expectations in the current cycle, but is expected to pick up next year as peak occupancy levels persist.  Nevertheless, we will be monitoring several macroeconomic indicators, particularly currency fluctuations this summer to gauge impact on U.S. lodging fundamentals.”