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Hotel Industry Trends & Predictions
Presented by:
Stephen Rushmore Jr., MAI, CRE
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The HVI measures changes in value and provides a tool for identifying hotel acquisition and disposition opportunities
The 2014 HVS-STR Hotel Valuation Index (HVI)
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HVS Focuses on Value
Every year HVS values thousands of hotels throughout the world
In the U.S., the HVI shows the value of a typical hotel in 65 markets from 1987-2018
Income
Cost
Sales
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$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
20
00
20
01
20
02
20
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20
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20
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20
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20
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U.S. Hotel values projected to taper slowly over next four years
Projected
Source: HVS/STR Hotel Valuation Index
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-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Eight to nine years of continual value growth
Projected
Source: HVS/STR Hotel Valuation Index
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Softening around Seventeen (2017)
Positive Impact
Economic recovery will continue to gradually improve
Negative Impact
Interest rates will slowly increase
New supply will gradually increase
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Annual feasibility studies are gradually recovering
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010 2011 2012 2013
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Florida markets were hot in 2013
Rank City Value
1 Sacramento 43%
2 Tallahassee 41%
3 West Palm Beach 33%
4 Jacksonville 32%
5 Phoenix 27%
6 Detroit 27%
7 Houston 26%
8 Nashville 25%
9 Dallas 25%
10 San Francisco 24%
United States 16%
Source: HVS/STR Hotel Valuation Index
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Only a handful of declining markets in 2013
Rank City Value
65 Huntsville -18%
64 Norfolk -7%
63 Richmond -6%
62 Washington DC -5%
61 Philadelphia -3%
60 Tucson 1%
59 Charlotte 1%
58 Pittsburgh 1%
57 Buffalo 2%
56 Baltimore 2%
United States 16%
Source: HVS/STR Hotel Valuation Index
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Growth this year is expected to come from secondary and tertiary markets
Rank City Value
1 Tallahassee 36%
2 Tampa 29%
3 Phoenix 23%
4 Indianapolis 22%
5 Oakland 19%
6 Austin 17%
7 Winston-Salem 16%
8 Minneapolis 16%
9 St. Louis 16%
10 Orlando 16%
United States 13%
Source: HVS/STR Hotel Valuation Index
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Secondary and tertiary markets to show the greatest value increase through 2018
Rank City Value
1 Richmond 58%
2 Tampa 53%
3 Hartford 52%
4 Tallahassee 51%
5 Jacksonville 49%
6 Phoenix 47%
7 Norfolk 47%
8 Las Vegas 46%
9 Orlando 38%
10 Atlanta 38%
United States 36%
Source: HVS/STR Hotel Valuation Index
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21 of 65 markets won’t appreciate above anticipated inflation over next four years
Source: HVS/STR Hotel Valuation Index
Rank City Value
65 Cleveland -5%
64 Detroit 0%
63 Portland 0%
62 Huntsville 2%
61 Seattle 2%
60 Los Angeles 4%
59 Chicago 4%
58 Nashville 5%
57 San Antonio 6%
56 New Haven 6%
United States 36%
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Typical financing terms
Leverage Interest Rate Equity YieldTotal
Property Yield
Trophy (Top 3%) 70 - 75% 4.75 – 5.5% 15 - 18% 9 - 9.5%
High Quality 65 - 70% 5 – 5.75% 17 - 19% 9.5 - 11%
Middle Quality 65 - 70% 5.25 – 5.75% 18 - 21% 10.5 – 11.5%
Lower Quality 60 - 65% 5.5 - 6% 19 - 23% 12+%
Source: HVS
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2014 Franchise Cost Guide
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Ongoing financial commitments to brands
Hard
Royalty fee
Reservation fee
Marketing fee
Frequent traveler program fee
Misc fees for training, conferences
10 - 15% of Rooms Revenue
Soft
Royalty fee
Reservation fee
2% of Rooms Revenue
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All of our costing data comes from UFOC’s –Uniform Franchise Offering Circular
Initial Fee
Royalty Fee
Reservation Fee
Marketing Fee
Frequent Traveler Fee
Misc. Fee
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Property Assumptions
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Average room count
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Occupancies & Average Rate
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Average length of stay
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Food and Beverage as a percentage of rooms revenue
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Loyalty program guests
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Reservation sources
Central reservations
Internet from brand
website
GDS: Global Distribution
System
Online travel
agencies
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Our Findings…
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The Franchise Fee Publication will be published in June.
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Final thoughts on franchise fees
Franchise fees as a percentage of rooms revenue have been increasing and will negatively impact hotel values
Franchisors must fully leverage their guest loyalty programs to create more value:
1. Take ownership interests into greater consideration for guest perks
2. Full service properties can factor potential overall profitability of guest when quoting room rates
