Headlines – Week of January 15, 2012

January 22, 2012

U.S. Hotel Values to Increase 25% in 2012

According to a bullish report in the 2011 edition of the HVS U.S. Hotel Valuation Index, the U.S. lodging market experienced strong demand recovery throughout 2011. Strong occupancy growth continued in 2011, as well as some initial recovery in average rates.

The transaction side of the business has increased considerably from the downturn witnessed in 2009 as numerous high-profile assets have come to market, and fierce bidding is commonplace among active institutional buyers and investors.

Highlights of the report include:

• Value for a typical U.S. hotel is forecast to increase by 28% and 25% in 2011 and 2012, respectively

• U.S. hotel values are projected to exceed 2006 peak levels by 2012

• Relative to the hospitality industry, investors aggressively re-entered the hotel market in 2011, and continue to do so now

• Hotel transactions in 2011 have involved larger and more expensive properties.

• Hotel capitalization rates and other rates of return have fallen to one of the lowest points in history — this is due to low mortgage interest rates, the large amount of equity capital chasing very few acquisition opportunities and the fact that there is huge upside potential in future NOI

• Las Vegas and Tampa are expected to register the most growth from 2009 (low point) to 2015

• San Francisco, New York City, and Oahu are expected to be the most valuable markets for hotel owners on a per-room basis by 2015

• On an annual compounded basis from 1987 to 2015, Austin, Texas; New York City; and Miami; have/are expected to exhibit the strongest yearly increases

• Markets with low risk but high return on investments are San Diego, New Orleans, San Antonio, and Seattle, based on market volatility analysis

• San Francisco leads the race to hotel value recovery

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Florida soon could be the third most-populous state.

Florida had the nation’s third-largest population growth in the past year. The U.S. Census recently reported that Florida grew by 256,000 residents from April 2010 to July 2011.

Texas and California were the only states with larger growth.

The 10 States with the Largest Numeric Increase from April 1, 2010, to July 1, 2011

1. Texas 529,000

2. California 438,000

3. Florida 256,000

4. Georgia 128,000

5. North Carolina 121,000

6. Washington 105,000

7. Virginia 96,000

8. Arizona 90,000

9. Colorado 88,000

10. New York 87,000

Florida now has 19.1 million residents, making it the nation’s fourth most-populous state. The Sunshine State is within striking distance of surpassing New York in population. All it takes is an additional 400,000 residents.

If current growth trends continue, Florida could pass New York in population size in two years. New York added 87,000 people between April 2010 and July 2011.

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Fed issues housing market white paper

The Federal Reserve Board studied the U.S. housing market to analyze existing problems and has suggested possible solutions.

The white paper, “The U.S. Housing Market: Current Conditions and Policy Considerations,” calls for increased lending to creditworthy homebuyers, and more loan modifications, mortgage refinancings and short sales to reduce the rising inventory of foreclosed homes and help stabilize the housing industry.

The Fed white paper says the current problem with mortgage credit “reflects not only a correction of the unsound underwriting practices that emerged over the past decade, but also a more substantial shift in lenders’ … willingness to bear risk.” However, the Fed says that fixing the current real estate market must not simultaneously repeat the mistakes of the past.

The Fed paper also addresses converting foreclosed properties into affordable rentals. Many real estate groups, including the National Association of Realtors (NAR) support any change that makes it easier for owner-occupants and small investors to get financing, such as opening the Federal Housing Administration 203(k) program to investors.

The NAR is concerned about proposed bulk sales of distressed properties, which could lead to greater losses for taxpayers and a negative impact on housing values.

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Posted by Scott R. Lodde


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