NASSAU, Bahamas—Limited financing availability and virtually nonexistent growth in the hotel-supply pipeline will fuel extraordinarily high increases in value for U.S. hotels, according to valuation expert Steve Rushmore, president and founder of HVS, a global hospitality consulting organization.
Speaking during last month’s Caribbean Hotel Investment Conference & Operations Summit held at the Atlantis Resort in Nassau, Rushmore said he and his fellow prognosticators at HVS anticipate a value-per-room increase of 28% to US$84,000 when 2011 comes to a close. That’s expected to increase 25% to US$104,000 in 2012, another 18% to US$123,000 in 2013, 11% to US$136,000 in 2014 and another 11% to US$151,000 in 2015.
The value-per-room equation reached US$99,000 in 2006. It stood at US$56,000 in 2009.
“We see value increase in all of the major markets in the United States with some of the gateway cities increasing the most,” Rushmore said. “Obviously, there are some regional and local differences, but for the most part, we see value increasing over time.”
The projected list of per-room value for hotels in some of those gateway cities in 2015 includes five that topped the US$300,000 plateau:
• New York: US$575,000
• San Francisco: US$539,000
• Oahu, Hawaii: US$488,000
• Washington, D.C.: US$363,000
• Boston: US$354,000.
The San Francisco figure represents a US$233,000 increase from the per-room valuation in 2010, Oahu’s represents a US$185,000 increase and New York’s represents a US$180,000 increase, according to Rushmore.
Rushmore said nationwide single hotel sales of assets of more than US$10 million have rebounded as well. Through October there were 125 such sales involving 30,933 guestrooms with an average price per room of US$204,000. This comes just two years after experiencing 47 sales comprising 13,882 (per-room value: US$162,000).
Rushmore noted that during 2010, there were 145 sales comprising 34,811 rooms and a per-room value of US$188,000. He pointed out the per-room price for 2011 is on pace to outperform the US$203,000-per-room value during 2006, when 265 deals comprising 80,523 rooms were consummated.
“In 2011, there are larger hotels at a high price,” he said.
Some assets that traded hands during 2011 include:
• The 168-room Royalton and the 114-room Morgans, both in New York, each sold for US$496,000 per room;
• the 162-room Viceroy Santa Monica in California sold for US$494,444 per room;
• the 775-room Helmsley Hotel in New York sold for US$404,516 per room; and
• the 1,190-room Hilton San Diego Bayfront attracted a sales price of US$399,160.
“There will be an extended period of increasing hotel values,” Rushmore said. “Don’t be afraid of low (capitalization) rates. In the U.S. the typical cap rate today is (5 to 8%) for most types of hotels. That’s on the low side because money is cheap if you can get it and most people anticipate growth in net income.”
Rushmore suggested hotel owners looking to sell their assets should wait until 2013 to do so because that will allow them to catch the significantly rising tide in hotel values.
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