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July 25, 2014

New York, New York! The Upcycle in the Hotel Space is Melting Away Those Little Town Blues

The upcycle in the hotel space is clearly underway with potential for epic appreciation. The national hotel occupancy rate is approaching peak levels again. And this, coupled with record demand for U.S. hotel accommodations and a muted level of new supply, positions the industry to increase average daily rates (ADR) above inflationary levels.

The inflation adjusted national average rate is still below peak with a lot of runway for growth during the next several years. The investment thesis in today’s hotel sale transaction market is that, as revenues rise above inflation and expenses increase at underlying inflationary levels, profits and property values will dramatically increase during the next 24 months to 36 months.

However, risks abound, including, but not limited to:

  • worldwide and/or global regional conflicts;
  • continued divisiveness of U.S. government for the next four years;
  • natural disasters, including effects of continued climate change;
  • risk of U.S. economy slipping into recession once again; or
  • continued tepid recovery of U.S. economy resulting in a lost decade or decades, similar to what occurred in Japan.

With everything said, the outlook for the nation is bright, as the U.S. has always and will always be the safest, most secure nation on the planet in which to invest. Overseas capital and visiting foreigners will continue with net inflows to the U.S.   Natural resources are being exploited whereby the U.S. is anticipated to be energy independent by 2030.  Finally, with a longstanding tradition of American creativity, the U.S. is an oasis of technology and innovation and a beacon the rest of the world looks to as a standard bearer for a free, entrepreneurial and market capitalist society.

The leading edge, at least domestically, continues to be New York City, and Manhattan in particular.  This is the case even with the deceleration on the economic recovery.  Occupancy, ADR and revenue per available room (RevPAR) are on the increase across all service levels, and the number of hotels in planning and development is impressive.  For the latest information, check out the PwC Manhattan Hotel Lodging Index for the 4th quarter of 2012, which is easily found on the internet by searching "PwC Manhattan Hotel Lodging Index for the 4th quarter of 2012". 

©2014 Greenberg Traurig, LLP. All rights reserved.

About the Author

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Nelson F. Migdal focuses his practice on hotel acquisitions, operations, development and finance, large mixed-use projects, condo hotels, hotel management agreements, general commercial real estate acquisitions, commercial leasing, lender representation, and the representation of property owners on telecommunications matters.

202-331-3180

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