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Valuations/ Intent to Build Soar

Hotel owners and developers are ready to sell, buy and develop new hotels. Here’s what they’re planning to do in 2014.

Tuesday, December 17, 2013
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By most accounts the hotel economy is breathing rarified air. Climbing up and up, industry fundamentals are solid and records are being broken every month. So just wait until next year! Forget 2007, it’s looking like 2014 is going to be one for the record books.

Now it’s time for the next stage of the industry upswing: Hotel development and an increase in property and portfolio sales. It’s a good news bad news scenario. The return of hotel development is great for owners looking to grow their portfolio to meet the higher demand for hotel rooms we are seeing in many places throughout the United States. However, too much new development could spoil the fun. And if there is one industry constant it’s this: Too strong a wave of new hotel development always kills the golden goose. That is, too much easy money means plenty of new hotel development, which means too many new and unnecessary construction projects, which erodes the strong supply-demand dynamic, which gives consumers too much buying power, which lowers rom rates and kills the golden goose.

Ouch. The good news is that inevitability is still some time away – 2017 or 2018 is the best all-around guess for when the industry will collapse under its own development growth. However, we most definitely do not want to start thinking about the pity party we’ll be having in five years. No way!

Now is the time to start thinking about how hotel owners today are going to ride out this wave of possibility. To learn more about how owners are feeling as we close out this historical year, we polled them. That’s right at last week’s BITAC Owners we utilized our advanced real-time polling system to ask the room’s brain trust what’s on their minds regarding how they have seen their hotels change in value, how they feel about the state of bank lending and also if they’re utilizing any atypical sources of financing to fund new hotel development.

For those not in the know, BITAC is the industry leading one-on-one meetings and relationship building event. Last week marked the 45th BITAC meeting, which was held at the iconic Breakers hotel and the event attracted the ultimate group of insiders and decision makers representing leading and forward thinking companies. They all came together at BITAC to problem solve, network, sign deals and exchange ideas to move forward the quality of experiences for hotel guests, while adding profits to the bottom line. There’s even time to cut loose, be social and network in a luxurious and relaxed environment.

Here is what BITAC Owners attendees were thinking last week:

What part of the industry cycle is your company in?
Optimism - 73.2%
Thrill - 19.5%
Greed - 7.3%
Relief - 0.0%
Depression - 0.0%

By what percent do you feel your property or your property portfolio has increased in value since 2010?
Up to 10% - 25.0%
Up to 25% - 42.5%
Up to 50% - 12.5%
Up to 75% - 12.5%
100% - 7.5%

By what percent do you feel your property or your property portfolio has increased during the last year?
10% - 32.4%
15% - 26.5%
20% - 17.6%
25% - 8.8%
26% or more - 14.7%

How friendly do you see banks regarding hotel loans these days? They are:
Lending to anyone who asks - 2.4%
Lending on most projects to established developers - 34.1%
Scrutinizing and being extremely careful about projects they finance - 63.4%
Not lending to hotel developers in any meaningful way - 0.0%

Which hotel segment will be healthiest for transactions in 2014?
Luxury - 5.0%
Upper upscale - 10.0%
Upscale - 25.0%
Upper midscale - 45.0%
Midscale - 10.0%
Economy - 0.0%
Independent - 5.0%

Do you plan to buy or develop a hotel in 2014?
Buy - 16.2%
Develop - 27.0%
Both - 29.7%
Neither - 27.0%

What is your opinion on this statement: “There is more money in the market today than anytime during the last 30 years?”
Somewhat true - 35.9%
Very true - 33.3%
Somewhat Untrue - 15.4%
Not true - 15.4%

Are you seeing more construction/ redevelopment funding coming from sources outside banks in the hotel industry in general?
Yes - 62.2%
No - 37.8%

Where is the most likely source for that funding?
Private equity - 47.4%
REITS - 18.4%
EB-5 financing - 2.6%
USDA loans - 0.0%
Traditional Bank loans - 28.9%
Other such as SBA 7(a) - 2.6%

Have you personally gotten a loan from atypical sources such as EB-5 or USDA financing programs?
Yes - 15.2%
No - 84.8%

Are these atypical sources something you think could help you with achieving financing goals?
Yes, I plan to use one for sure - 26.7%
Yes, I am intrigued with these sources - 53.3%
No, they are not for me - 10.0%
No, I am not doing any development - 10.0%

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