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- May 1, 2015: Vol. 2, Number 5

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The Red-Hot Hotel Business: With property values escalating and lots of projects in the construction pipeline, is it time to check out?

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Karen Johnson has been keeping tabs on the hospitality and hotel business for more than 30 years. Her pedigree as a hospitality industry consultant includes stints with organizations such as Horwath Landauer/Landauer Associates, Jones Lang LaSalle, Marriott and PKF Consulting. Now, as principal of Pinnacle Advisory Group, we asked her to assess the current state of the hotel sector.

 

WHAT ARE CURRENT VALUATIONS FOR HOTEL PROPERTIES?

It is a very frothy market. Evidently, buyers believe the low interest rates are here to stay, and it is reflected in their discount and cap rates. It is not unusual to see sales happening at cap rates of 4 or 5.5 percent, which means, basically, appraisers may have to ignore surveys that say cap rates should be in the 7s and 8s. It wasn’t too long ago that cap rates were in the 9, 10 and 11 percent range, and I mean two or three years ago. They have really, really compressed.

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