Hospitality's Fundamentals Will Blow You Away

Hospitality properties are selling about as quickly as they hit the market. (It's like Whack-a-Mole, except people use cash instead of a mallet.) That kind of interest is one reason we’re hosting our Hotel & Lodging Summit at 7am on Sept. 30. You can register here, and read up what’s attracting all the interest below.

CBRE Hotels first VP Bert Stevens recently put the renovated 171-room Hilton Garden Inn Willowbrook on the sales block and it's already getting lots of attention. Availability of hotel financing is prevalent, he says, especially in Texas markets, which rank among the best nationally for hotel occupancy and revenue gains (which continue to rise year over year). Texas occupancy was over 64% in Q2; well above the equilibrium occupancy of 60%. That means that room rates will start to rise, which indicates higher profits, Bert tells us. Room revenue growth in Texas went up 8.4% over the same time last year, a nearly $2M per day increase.

Here’s the Hilton Garden Inn Willowbrook, which is near Willowbrook Mall. Real Capital Analytics stats show Houston ranking 21st, Dallas ninth, and Austin at 16 out of the major US markets for Q1 occupancy. That’s only gonna get better and continue to grow into 2015 and 2016, before it plateaus. In Q1, supply in Texas grew about 2.5%, while the real demand rose 4.1%, meaning supply hasn’t caught up with demand. A wave of development will eventually catch up with demand, Bert says, which is the one thing that could slow things in the future, but for now it is a great time to be in the hotel business. When Bert gets some free time, he likes to take his 35-foot RV around the state parks of Texas.

PKF SVP Randy McCaslin says Houston is in the sweet spot of construction, ADR, and occupancy. Supply is down, demand is up, occupancy is above average, and turnaway is up. We do have artificially high rates, he says (per diem rate is up $14 to $132), which will dip to stabilization over the next three years as supply increases and occupancies normalize. Randy anticipates that the Houston metro will have 76,000 rooms by the end of this year, with 71% occupancy, $108.50 ADR, and $76.73 RevPAR. By year-end 2015, he expects ADR will rise to $113, and RevPAR to improve to $79.63.

HREC Investment Advisors VP Hank Wolpert (center, on a recent property tour with Michael Meehan and Harry Greenblatt of Pyramid Hotel Group and Len Howell and Pacifica Hotel Group's Sushil Israni) says there’s a furious race to acquire hotels with an exceptional amount of capital allocated for hospitality. Interest in hospitality acquisitions is on the rise with some assets getting 30-40 confidentiality agreements signed within a day or two, he tells us. With the small amount of new supply, development will increase especially as the major brand families roll out new product. Hank tells us HREC is bringing four or five Houston hotels to the market shortly. If you'd like to learn more, register here for our Hotel & Lodging Summit at 7am on Sept. 30.