United States: 2018 LIIC Top 10 – Annual Survey Of Lodging Investment Challenges And Opportunities

Last Updated: May 11 2018
Article by Jim Butler

Co-authored by Alexander Cammarata and James Few

Today, at Meet the Money® – National Hotel Finance & Investment Conference, Mike Cahill, co-chairman of the Lodging Industry Investment Council (LIIC) and CEO and Founder of HREC Hospitality Real Estate Counselors, presents the annual LIIC Top Ten.

For more than ten years, LIIC, the industry's preeminent think tank, has surveyed its members to determine challenges and opportunities for the coming year. LIIC's members represent the direct acquisition and disposition control of more than $40 billion and include industry investors, lenders, corporate real estate executives, REITs, public hotel companies, brokers, and equity sources.

Here is the 2018 LIIC Top Ten

1. Hotel Real Estate – Floating Forward in a Fluid Market

  • 2018's survey results indicate "business as usual"
  • Hotel transaction market is fluid; hotels are trading
  • Solid hotel debt availability
  • Private Equity and Listed REITs predicted to dominate the purchase of Upscale to Luxury hotels
  • Small Private Buyers and Regional Owner/Operators predicted to dominate the purchase of Economy to Upper Midscale hotels

2. Trump is Good for Hotel Owners

67% believe Trump's tax reform bill will positively affect hotel owners

  • 41% citing an increase in GDP growth
  • 28% citing a correlated increase in business travel

Positive outlook on US economy

  • 70% believe the economy will continue to trend upwards in the next 24 months

3. Hotel Property Values Flat to Increasing Slightly

  • 41% predict lodging real estate values to be flat over the next 12 months
  • Similarly, 41% anticipate a slight increase (up to 5%) in lodging real estate values
  • 74% believe Upscale/Upper Upscale lodging assets represent the best purchase opportunity over the next 12 months

4. Top Three Threats to Your Hotel Investment

  1. New Lodging Supply: 78% of respondents view new supply as the top investment concern (down from 90% in 2017)

    • However, 82% are currently building new lodging assets
  2. Increasing Interest Rates: Viewed as a threat by 63% of respondents

    • 86% anticipate a slight increase (up to 100bps) over the next 12 months
  3. Low Unemployment: The availability of quality employees is worrisome to 49% of LIIC (up from 26% in 2017)

    • 78% believe their hotels have been negatively impacted

5. Hotel Transactions for Calendar 2018

Dollar Volume:

In calendar year 2018, 35% believe that hotel transaction dollar volume will be down from 2017 levels, while 29% believe volume will increase up to 10%

Number of Sales:

Evenly mixed and inconclusive:

  • 32% down, 30% flat, 29% up from 2017

6. Hotel Debt – Impact of Increasing Interest Rates

  • 67% believe that rising mortgage interest rates will increase cap rates up to 50 bps
  • 55% elected to refinance instead of sell in the last year
  • 49% believe the ideal refinance window has closed
  • 37% still believe the window is open
  • 68% of owners are "very likely" to refinance in the coming 12 months

7. New Hotel Development Slowing?

Despite the development pipeline containing ~600,000 rooms:

  • 60% believe it is still a good time to build a hotel "If you are selective about product and market"
  • 81% of owners have hotels under development
  • 63% do not believe it has become more difficult to secure construction financing

8. Hotel Buyers Whining: Where's the Beef?

Quantity:

  • 51% believe below average quantity is available for purchase
  • 25% believe average quantity is available for purchase

Quality (Desirability to Purchase):

  • 41% believe slightly worse quality of product is currently available
  • 41% believe stagnant quality of product is currently available

9. Markets Not to Invest In

  1. Nashville, TN (33%; up from 2nd place last year)
  2. St. Louis, MO-IL (32%; up from 5th place)
  3. Detroit, MI (30%; steady in 3rd)
  4. Norfolk/Virginia Beach, VA (24%; welcome to top 5)
  5. New York, NY (19%; dropping from 4th place)

Sleeper — where to buy? Denver! Not one vote against, time to buy in God's Country.

10. Are Hotel Asset Packages Still Hot?

Will investors pay a premium for packages of 5 or more assets? LIIC's opinion is virtually split:

  • 52% -Yes
  • 48% -No

LIIC Bonus Question: When staying at a hotel on a multiple day business trip, 60% of LIIC would "pass" on daily room cleaning...broken down

Pass

  • 32% – for additional membership reward points
  • 14% – for 5% discount on room rate
  • 14% – for no discount saying that "protecting the environment is the only reward I need"

Not Pass

  • 19% – because of sanitation issues
  • 21% – want a hotel person checking daily to make sure they are alive

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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