Investment Criteria
- Overall hotel capitalization rates have declined 32 basis points from 2009 to 2010. We attribute the decline in hotel cap rates to the over-weighted influence of high-priced urban and luxury hotel transactions.
- Hotel cap rates are above 10 percent for extended-stay and select-service properties. While these property types are extremely popular with guests, they are also preferred by developers and run the risk of increased competition.
- Older limited- and full-service hotels are being traded at high cap rates because they are most vulnerable to the surge in newer mid-market properties.
- Cap rates are lowest for hotels in top-tier markets, indicating a belief that the greatest recoveries will occur in the nation’s urban areas.
- The holding periods for sellers dropped significantly indicating the presence of opportunistic buyers in search of bargains who in turn re-sell them quickly rather than hold as a long-term investment.
- Hotel debt coverage ratios have increased since 2009, indicating a further tightening of underwriting standards.
- Hotel loan to value ratios are at an all-time low, meaning investors must put up substantially more equity to get a deal done.
- For buyers that qualify for a loan, interest rates remain relatively low and the length of the loan has risen slightly.
- Hotel Cap Rate, Trailing 12 (NOI)
- Hotel Cap Rate, Forward 12 (NOI)
- Hotel Cap Rate, Terminal (NOI)
- Hotel IRR / Discount
- Hotel Equity Yield
- Hotel Cash-on-Cash Return
- Holding Period (years)
- Hotel Loan-to-Value Ratio
- Hotel Interest Rate
- Hotel Amortization Period (Years)
- Hotel Loan Term (year of balloon)
- Hotel Debt Coverage Ratio
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