ATLANTA—PKF Consulting USA, LLC (PKFC) recently released the 2013 edition of its Hospitality Investment Survey, which found that participants think that rising profits, limited supply growth and improved access to capital make 2013 and 2014 an excellent time to invest in the U.S. lodging industry.
According to PKFC, several factors support this positive outlook. First, due to limited supply growth, revPAR is forecast to grow between 6-7% in most major U.S. lodging markets. Second, given the strong outlook for revenue growth, NOI is forecast to increase more than 10% through 2015. In addition, interest rates for hotel development and acquisition purposes are still at historically low levels, so the dividend yield from a hotel investment looks attractive given the risk. Moreover, as special servicers and banks work out troubled lodging assets, fewer distressed properties will remain to have their loans modified or sold. Lastly, few quality hotels are available for sale causing aggressive bidding.
Conducted in the spring of 2013, the survey tracks changes in investment and financing criteria over the prior 12 months. According to PKFC, capitalization rates continue to improve. In 2013, the overall capitalization rate (OAR) decreased to 8.38%, a 35 basis point decline compared to the 2012 survey results and the lowest OAR recorded since the inception of the survey. This year’s survey also indicated that discount rates, or un-leveraged IRR’s, for hotels decreased 37 basis points to 11.05%.
Additionally, the survey found that financing, though not abundant, is becoming more available and affordable. Interest rates fell in 2013 to 5.54%, a comparative year-over-year drop of 104 basis points. Debt service coverage ratios increased slightly, though they remain near 2007/2008 levels. Loan-to-value ratios (LTV) experienced minimal change compared to 2012. At 64.63%, LTVs are below the historical survey long-run average of 66%.