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U.S. hotel industry in full swing

Marriott OahuThe U.S. hotel industry is approaching a significant crossroads with a strong positive trend, according to HVS, a global hospitality consulting organization.

In 2013, hotel valuation fundamentals signal a strong positive trend in transaction volume as well as in new hotel development. HVS Valuation experts acknowledge that hotel values peaked in 2006 but declined rapidly for the next three years. In 2010, the recovery began. Today, hotel values have returned to their 2006 levels and consequently, this has resulted in jump starting what will be a noteworthy boost in hotel transactions.

To date this year, U.S. hotel values have reached their 2006 peaks and, therefore, transaction activity is expected to escalate rapidly. In addition, hotel values have surpassed replacement cost in most sectors, making new development more feasible.

According to the HVS/STR Hotel Valuation Index, the 2006 value of $99,000 per room dropped precipitously by 50% during the following three years to $56,000 per room. During the 2010 to 2012 recovery years, values increased approximately 20% per annum, and HVS is projecting this value growth to continue at an average of 12% each year for the next three years.

By 2015, HVS forecast that the top three cities with the highest value per room will be Oahu, San Francisco, and Miami. Additionally, HVS predict that New York, which had the highest value per room in 2010, will drop to fourth place in 2015.

In analyzing the 65 U.S. markets that HVS track, the firm is projecting that all of these markets will show positive value appreciation over the next four years (2012-2016). The biggest gains will be Miami, Oahu, New York, and San Francisco with the smallest gains showing in Tucson, Tallahassee, Albuquerque, and Norfolk.

According to HVS data, we are witnessing an increase in major hotel sales transaction volume. Comparing year-to-date for 2013 with the same period in 2012, the number of major sales has doubled. In 2012, the total volume of major transactions was 184, which means that based on this year’s year-to-date data, total hotel transactions could easily exceed 300.

There were several major transactions consummated so far this year, including Liberty Hotel in Boston at $570,000 per room, and Bacara Resort & Spa, which sold for $514,000 per room. It is notable that some select service hotels are at significantly higher pricing per room compared to full service hotels.

For example, Marriott Courtyard Houston, a select service hotel, commanded $176,000 per room, but the full service Marriott in Atlanta came in at $175,000 per room. These figures are remarkably close in value.


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