January 9, 2012: Steve Rushmore, president and founder of HVS, the leading global hospitality consulting and services firm, has announced the publication of the 2011 U.S. Hotel Valuation Index. The Hotel Valuation Index (HVI) tracks hotel values in 51 major markets and the United States as a whole.
According to HVI co-authors Michael L. Mele, Chu Xu, and Rebecca Lee, “The U.S. economy is continuing its recovery from the financial crisis. Growth occurred at a relatively slow pace in the first half of 2011, but accelerated in the latter half. The factors which impeded growth in the first half of the year included: the stock market turmoil, the downgrade of the U.S. Treasuries’ credit rating, European debt crisis and uncertainty over the debt ceiling impasse. However, the outlook of the U.S. economy today has become more positive and concerns of a second recession have dwindled.”
The co-authors add that relative to the hospitality industry, investors aggressively re-entered the hotel market in 2011, and continue to do so now.
In the first half of 2011, the value of the hotel investment transactions that occurred in the U.S. market reached $7.4 billion, an increase of 180% from the same period the previous year. The U.S. continues to be the dominant country in the Americas for hotel transactions, accounting for 94% of the regional transaction volume. REITs have been trading at strong multiples and have been able to access the equity markets, while private equity funds have raised significant sums of capital and the debt markets are more active; this has led to the significant increase in activity. New York City is at the forefront of this year’s deal volume.
Overall, the upward trajectory of occupancy and average rate fundamentals has lead to notable increases in hotel value. With the potential for continued improvement in underlying operating fundamentals, the sizeable amount of acquisition capital, and the desire of sellers to put their properties on the market, we anticipate this healthy recovery to continue through 2012.
According to the HVI, U.S. hotel values peaked in 2006 at $100,000 per room. The low point during the recent downturn occurred in 2009, with values dropping to $56,000 per room. By 2012-13, hotel values are expected to recover to 2006 levels and continue to increase from that point, barring any unforeseen circumstances.
“If you have the cash, now is the time to buy,” states Rushmore.