Emerging Trends in Real Estate 2012 - Urban Land Institute

Chapter 4: Property Types in Perspective
Exhibit 4-12
U.S. Hotel Occupancy Rates and RevPar
Exhibit 4-13
U.S. Hotel/Lodging Property Total Returns
Occupancy
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990
1992
1994
Occupancy (%)
1996
1998
2000
$30
2010 2012*
Sources: Smith Travel Research (1987 to 2010), PricewaterhouseCoopers LLP (2011 and 2012).
*Forecast.
2002
2004
2006
RevPAR ($)
2008
$80
$70
$60
$50
$40
RevPAR
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
1995
NCREIF
1997
1999
NAREIT
2001
2003
2005
2007
2009
2011*
brands without food and beverage overheads. Operators always
are key to driving results. “They must be hotel specialists, not
real estate guys.”
Avoid
Overleveraged resorts—saddled with whopping upkeep and
staffing budgets—look like black holes, especially properties
depending on residential sales or vacation time-share features.
“A boatload of unsold inventory exists without a market.” The
price per key might look good on some older hotels, but heavy
capex requirements should be “deal killers” on any product
threatened with obsolescence. About half the nation’s 5 million
lodging properties are owned by independents, many of which
struggle to replace even carpets or bedspreads. The overbuilt
economy sector, particularly highway interchange motels, copes
with a chronically high-fuel-cost environment, reducing vehicle
trips and occupancy rates.
Sources: NCREIF, NAREIT.
*Data as of June 30, 2011.
Outlook
Without enough oomph from the economy, the typical sharp
hotel recovery track slows prematurely. “The play seems gone”
before it started. Normally investors buy near lows, try to limit
plowing too many dollars into properties, and then sell into a rising
market before economic growth sours and derails business.
This time the economy never started really firing. Top markets
will continue to outperform, but improvements in occupancies
and revenues per room will probably flatten out. Outside of
favored cities, expect limited transaction activity.
Development
Except for uber–tourist destination markets like New York City,
lenders will effectively “place a lid on new supply” until the
economy shows sustained improvement, which will not happen
in 2012. “If you want to find an underserved market, try North
Dakota. The opportunities are that few and far between.” Most
projects will be outside the United States.
Emerging Trends in Real Estate ® 2012
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