Behind the scenes of the annual exhaustive “LIIC top ten survey” from the Lodging Industry Investment Council lies an extensive and comprehensive survey filled in by the leading hotel investment executives in North America. In addition to the many multiple choice questions, optional space is provided for write-in comments. For the first time in the history of the survey, we decided to publish some of these quotes.
As will be seen in the quotes, LIIC member thoughts are diverse, from pithy to “tongue-in-cheek” to downright prophetic. Attitudes range widely from “Polly Anna” to “Negative Nelly.” Clearly, the views of today’s most influential hotel investors (the people with great influence on all our professional lives) vary widely in terms of seeing the “glass as half full or half empty.”
Top 15 quotes
- “The hotel markets are improving greatly, but I do not see comparable improvement in the underlying economy. 2. Global/Macro Events 3. There is early in the game a return of ignorant non expert yield chasing player entering the market and bonus 4. The US Government is clueless and anti business and can likely screw up a long overdue economic recovery.” — Advisor/consultant when asked only what his top three future concerns were
- “The two ends of the barbell have a bright future in the near term – luxury and economy. Convention and group hotel value will surprise to the upside as group bookings show increases.” — Owner/operator relative to hotel value trends
- “Assuming (net-operating-income) growth is significant, which it is forecasted to be, then values will increase irrespective of (capitalization) rate compression. Development in the Midscale segment continues, however, so that may mute value growth in certain markets.” — Owner/operator in reference to forecasted hotel values for the next 12 months
- “There is a lender ‘scrum’ on most debt placements these days.” — Owner/operator on future of hotel interest rates
- “Key is tension between cap rates and NOI. I believe treasury interest rates stay at or around 3% (call it 2.5%-3.2%) for the next year, so cap rates are unlikely to move up (maybe down given how much money is chasing hotels). So the rest is down to growth, which should be pretty good—mid-single digit (revenue per available room), varying by market, with some margin gains despite ongoing cost pressures.” — Widely published industry analyst when questioned about the near future of hotel values
- “The financing is there for almost anything, as long as there is a contract of sale, so buyers can make any offer and find a bank willing to lend.” — Hotel lender relative to the future of hotel values
- “Contrary to public banter, lenders are still relatively disciplined and require thresholds on (loan to value) and (debt service coverage ratio), as well as good sponsorship. (Commercial mortgage-backed securities) lending started off the year muted relative to expectations.”— Owner/operator on senior hotel debt trends
- “Investors have adjusted their return criteria down over the past 18 months, but are showing discipline by not chasing lower. Many funds have target hurdles that will not allow them to keep adjusting lower.” — Owner/operator on the future of unlevered hotel equity return requirements
- “How will we successfully work with new Chinese hotel owners and investors as they become significant factors in the industry?” — Advisor/consultant on future hotel investment concerns
- “Equity looking for hotel investments is increasing, and debt availability is also increasing. As prices go up buyers will utilize leverage to achieve their returns this lowering I levered return requirements.” — Owner on the future trends of unlevered hotel equity rates of return
- “(Real estate) prices continue to rise faster than cash flows. Product is less available which drives higher acquisition prices. The desire to place money is high, thus return expectations go down. Similar to what occurred in the late 90s and mid 2000s.” — Developer when questioned about the future of equity returns
- “Lots of capital chasing hotels, lots of low cost debt, and higher LTVs, so buyers bidding prices up, equity returns down.” — Industry statistics expert on future of equity returns
- “Deals are trading at full value. The winner in the bidding has to do something to get that next turn to win; either use more debt or compromise on returns. Debt is available so it will be used.” — Owner/operator in reference to the forecast of typical mortgage loan/value ratios
- “Sale expectations (pricing) are too high in secondary and tertiary markets. They are approaching replacement values.”— Third-party operator when questioned about top concerns over the next 12 months
- “I’ve seen this movie before, it always ends in tears.” — Hotel lender when asked about hotel lending trends
Successful hotel investment involves reliably reading market perceptions and realities. The quotes presented give key insight into the minds of those people controlling the hotel real estate market. While hotel owners, operators, developers, brokers, lenders—and every other discipline in the industry—face a number of hurdles going forward, optimism abounds. How long that lasts remains to be seen. However, it’s clear the LIIC membership, which collectively represents hundreds of years of hotel deal experience, believes the good times will continue to roll for the foreseeable future.
For questions on the top 15 quotes, please contact any of the below.
Mike Cahill, HREC, mcahill@hrec.com
Sean Hennessey, Lodging Advisors, shennessey@lodgingadvisors.com
Jim Butler, JMBM, jbutler@jmbm.com
For more information on LIIC – The Lodging Industry Investment Council, please consult our website, www.liic.org.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.