Hotel & Motel Management - May 5, 2008 - (Page 42)

42 News H&MM May 5, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Cap rates Continued from page 1 verage debt, combined with a good amount of private equity or equity dollars competing for sales,” said Bob Eaton, executive managing director, PKF Capital. “It’s turning back up because that debt has become largely more conservative in its underwriting and the loan-tovalue ratios in the debt markets are much more conservative, more like 65 percent rather than 80 percent.” That conservativeness has extended to availability of capital. “Wall Street money has become dramatically more difﬁcult to obtain. That in and of itself helps drive cap rates up,” said Peter Holmes, c.o.o. of HotelBrokerOne. “Once it becomes more difﬁcult Eaton to obtain the ﬁnancing, PKF CAPITAL even if the ﬁnancing doesn’t cost more to obtain, the difﬁculty factor leads to the perception that the market is in trouble.” Questionable future Just as whether the U.S. economy is in a recession or not is disputed, the health of the hospitality industry also can be disputed. Fundamentals of the industry, such as average daily rate and revenue per available room, still are anticipated to grow, but not at previous rates. According to Smith Travel Research, the ﬁrst 60 days of 2008 saw a 3.2-percent RevPAR gain—a marked decrease from 2007 yearend numbers that pegged RevPAR at 5.7 percent— and a 5-percent boost in ADR, which is lower than last year’s 5.9 percent. Some statistics, such as occupancy, already have shown a decline: STR’s numbers put occupancy down 1.7 percent in the ﬁrst two months of 2008. Supply and demand factors, however, remain relatively strong: PKF predicted supply in 2008 will increase 2.9 percent over 2007, and demand will increase 0.9 percent from last year. Cap rates, while on the increase, are at the third-lowest rate since PKF’s survey started in 1995. In 2005, cap rates fell below 10 percent for the ﬁrst time since the survey’s inception. Its rise, however, still might cause concern and have an impact on the industry. Because of cap rates, transactions will slow in 2008, Eaton predicted, and it will be a challenge for owners and operators to get liquidity for renovations. Additionally, he said increased cap rates will bring more partnerships. “There will be a lot more joint ventures formed because the industry’s over-leveraged, so the only study shows hotels with a sales price of $101 million and up had an average cap rate of 5 percent. At the beginning Loews, a luxury brand, The rise in cap rates— has seen cap rates between HVS reported third 4 and 6 percent, and lower quarter 2007 had the for resort properties, Aephighest average, at 9.2 Crandell pel said. However, she percent—can be traced CAPITAL said there are fewer acquito the onset of the credit crisis in sitions available in the luxury segAugust 2007, said Chad Crandell, ment because there are few properpresident of Capital Hotel Man- ties and many competitors. agement LLC. Also fueling the increase, ac“That’s when things began to cording to Aeppel: “I think expecturn, and a lot of lenders at that tations of sellers have not changed. point, even in August, pulled back They’re still looking at cap rates on obligations to deals,” he said. of ’07 and thinking ‘We’re going A belief also existed that late through a little hiccup,’ and they 2007 was the peak value to sell, should hold onto their luxury asHolmes said. “I do think you had sets. There’s not a lot of sellers that some sellers say, ‘I better sell right are anxious or required to sell. The now and get what I can get,’ be- supply of deals available for acquicause the perception was 2008 sition has declined and the money might be a poor economy.” is still there, so the impact falls diThe higher cap rates didn’t af- rectly on cap rates.” fect all segments, however; the HVS ehanna@questex.com way to counteract that is to bring in equity in a partnership,” he said. AAHOA report Continued from page 1 erties sat on a panel moderated by attorney Robert Zarco, who has earned recognition in the area of franchise litigation by representing franchisees throughout the world. Zarco delivered questions on key franchisee-franchisor relationship issues to the panelists. Zarco opened by conveying the message that many franchisees he represents think liquidated damage amounts are inﬂated, and franchisors can replace the branded property at a lesser cost than they charge in damage claims. “You sign a single license agreement with us and we sign a single license agreement with you and all the wording in there is fully disclosed,” said Stevan Porter, president of The Americas, InterContinental Hotels Group. “I’m very comfortable that’s the right and best way for both parties to navigate what largely is a very successful relationship, but can at times be difﬁcult. “If somebody else wants to do it differently, start your own company, write your own license agreement and execute differently.” Nancy Johnson, executive v.p. of franchise operations for Carlson Hotels Worldwide, addressed the topic of remodeling and renovations that are required by the franchisor, which Zarco referred to as the “amenity creep.” Zarco asked Johnson about instances when the franchisee is required to put more money into the renovations than he or she will see in return. “We have renovations that we’re putting in place now for hotels,” she said. “We’ve been on a huge economic run over the last ﬁve years and the money should’ve been reinvested in the property to keep it fresh. It is your obligation to make sure, as business people, that you’re taking care of your assets, but it’s our obligation to protect you by making sure every single person who carries our brand takes care of their assets.” 1 Stop the bleeding. Are rising food prices squeezing you? They don’t have to. With leading procurement , services from Source1® your multi-unit operation can save millions of dollars across your entire supply chain without giving up control. • Build your purchasing muscle Convention notes Also during the convention: The AAHOA board of directors held its annual elections and Hemant D. Patel was voted in as treasurer of the association. Danny Patel discussed AAHOA’s success last year, when the group saw membership rise to 8,774 regular members. “By this time next year, we are going to reach the goal of 10,000 members,” he said to 2008 chairman Ashwin “Ash” Patel. jfreed@questex.com • Improve your operations • Lower your costs • Preserve quality and customer satisfaction Discover how the country’s most successful properties are saving with Source1. Visit Source1Purchasing.com. Where technology and service meet. And schedule a free private webinar demonstration toll free at 1-877-717-5566 CIRCLE NO. 138 http://HotelMotel.com http://www.HotelMotel.com/digital_edition http://Purchasing.com http://Purchasing.com

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Hotel & Motel Management - May 5, 2008 Contents Pipeline Favors Established Companies 3 Palms Debuts in Upscale Tier Guests Want Reward Options Perspective Legally Speaking Marketing Matters Consultant’s Corner On Finance What Women Want Maintenance Doctor Trends & Stats Special Report: Top Hotel Brokers Design: Tune Into Music Programs Hot Products: PTACs On the Block: Silver Lining in Bleak Hotel Sales Market Events Transactions Supplier News Consumer Insight: The Importance of Creature Comforts When Traveling Ad/Editorial Index Marketplace Classifieds Checking Out

Hotel & Motel Management - May 5, 2008

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