New Orleans: re-emerging market for hotel investors

Posted on: July 6 2011 | Posted in: Latest News
It Might Be Time to Buy Hotels

Jul 6, 2011
By John O’Neill, contributing editor Lodging Hospitality

Lots of people I spoke to at the 33rd Annual New York University Hospitality Industry Investment Conference in New York last month agreed a fundamental method for determining whether it’s a good time to purchase hotels is whether within a given hotel market, there’s the ability for investors to purchase properties at below replacement cost at a time when average daily room rates are beginning to gain traction and show increases. There are now a number of hotel markets fitting into this acquisition opportunity model.

According to HVS President and Founder Steve Rushmore, areas that fit the model include traditionally strong markets like New York and San Francisco, and also re-emerging markets like New Orleans and Las Vegas. Many smaller markets fit the bill, too. One would expect in the not-too-distant future, investors will find it increasingly difficult to buy hotels below replacement cost in such markets. Combined with the early re-emergence of hotel acquisition financing at a time when mortgage interest rates are near historical lows, this period is indeed an attractive one for hotel acquisitions.

Consistent with Smith Travel Research’s recent re-categorization of midscale hotels from Midscale with Food & Beverage and Midscale without Food & Beverage to Upper Midscale and Midscale, the Penn State Index of U.S. Hotel Values has re-categorized its classifications, as well. The Upper Midscale category includes such hotel brands as Comfort Suites, Hampton Inn, Holiday Inn and TownePlace Suites, while the Midscale segment includes Baymont, Howard Johnson, La Quinta and Quality Inn.

The Upper Midscale hotel segment is anticipated to register strong improvements in market value of approximately 11% in both 2011 and 2012. The Midscale category is expected to show decent value increases of 7.6% and 10.9% in 2011 and 2012, respectively.

The Economy segment is projected to record the strongest percentage increases in hotel values in 2011 and 2012 of 15.0% and 17.8%, respectively. The Luxury segment is anticipated to show the highest increases in value per room of approximately $24,500 and $36,400 in 2011 and 2012.
John W. O’Neill, MAI, CHE, Ph.D., is director of the School of Hospitality Management at The Pennsylvania State University. He can be reached at jwo3@psu.edu or 814-863-8984.