Sure, buying hotel real estate early off the trough locks in attractive appreciation, but it is equally critical to buy the RIGHT hotel assets. There is always demand for the right assets, and pricing premiums surge in relative terms as markets strengthen.
Hotel values in gateway markets have surged off their recessionary lows. The bounce off the bottom in fundamentals at the full-service and luxury end of the market has been robust and expected to continue for a number of years – particularly with a relative dearth of new supply. There is also a growing imbalance of capital chasing fewer buying opportunities adding to the upswing in prices, and this is only expected to become more acute – particularly for the best hotel assets.
So while recovery is tied to the economy and may be slower than expected, the hotel sector will enjoy disproportionate liquidity for some time.
However, the real trick has always been identifying and acquiring the best assets – those for which there is virtually always liquidity. These assets tend to be in gateway markets and in the best locations – and they tend to be 4-star or better. There seems to always be a shortage of this product, and that shortage and values really spike as the cycle peaks. They are most attractive to high net worth investors, international capital sources and to institutional capital sources that often arise as the market is peaking.
– Robert Stiles