Monthly Archives: June 2013

Hotel Investment is Hot, Survey Says

Jun 18, 2013

From the Boston Business Journal

By Thomas Grillo, Real Estate Editor

A convergence of positive operating fundamentals and a favorable financing environment is making hotel investment hot, a survey said.  Rising profits, limited supply and improved access to cash, make this an excellent time to invest in the U.S. hotel industry, according to PKF Consulting’s Hospitality Investment Survey.

Due to limited supply growth, revenue per available room (RevPAR) is forecast to grow between 6 to 7 percent in most major U.S. lodging markets, the survey said. Given the strong outlook for revenue growth, net operating income (NOI) is forecast to increase by more than 10 percent through 2015.

Interest rates for hotel development and acquisition remain at historically low levels and the dividend yield from a hotel investment looks very attractive given the risk, researchers found. As special servicers and lenders work out their troubled lodging assets, fewer distressed properties remain to have their loans modified or sold. The limited number of quality hotels available for sale is causing aggressive bidding.

The report said overall capitalization rates fell to 8.38 percent, a 35 basis point decline compared to the 2012 survey results and the lowest recorded cap rate since the inception of the survey. This year’s survey also indicated that discount rates for hotels decreased 37 basis points to 11.05 percent.

Despite the positive outlook for industry performance, many survey participants anticipate a shorter holding period. These respondents fear increases in supply and potential upward pressure on interest rates.

The sentiment of the survey indicates that financing, though not abundant, is becoming more available and affordable. Many survey respondents said new construction financing is becoming more available in second- tier and tertiary markets. Interest rates fell in 2013 to 5.54 percent, a comparative year-over-year drop of 104 basis points.

Debt service coverage ratios increased slightly, though they remain near 2007/2008 levels. Loan-to-value ratios (LTV) experienced minimal change compared to 2012. At 64 percent, LTVs are below the historical Hospitality Investment Survey average of 66 percent.

While most investment and financing criteria remained relatively unchanged over the past 12 months, two of the most important criteria continue to improve: access to capital and interest rates. Investors and lenders surveyed continue to be bullish regarding the next few years, and due to the lack of high-quality assets being marketed for sale, PKFC expects the transaction activity of well-branded assets in second-tier and tertiary markets to increase over the next 18 months.

Leave a comment

Filed under Uncategorized

Hilton on Track to Regain Industry Lead, CEO Says

By Patrick Mayock, Editor-in-Chief,, 31 May 2013

 WASHINGTON, D.C.—Chris Nassetta’s work is never done. The president and CEO of Hilton Worldwide said complacency breeds failure—which is a storyline Hilton is all too familiar with over its near century history of ups and downs.

 “The minute you think you’re done and you start resting on your laurels, you end up having people knock you off the top of the heap,” Nassetta said during last month’s Bisnow Lodging Investment Summit.

 That’s what happened to Hilton for decades, he said. The groundbreaking hotel chain was an industry leader from the get-go, but the competition eventually caught up with the company.

 “We became complacent. We got as a company so far ahead in the 1960s and the 1970s that I think we started thinking there is no competition,” said Nassetta, who joined Hilton in 2007. “Bit by bit by bit over 10 or 20 or 30 years, we lost our edge and we ceded our leadership position.”

 Fortunately, investment giant Blackstone recognized the upside and acquired Hilton in 2007 in an attempt to unlock value from what was then an “undermanaged, sub-optimized, coiled spring,” he said.

 “In the last five or six years our objective has been to reclaim that spot. I think in many ways we have,” Nassetta said, adding there’s still plenty of work left to be done.

 Hilton Worldwide now counts nearly 4,000 hotels with more than 650,000 rooms around the globe.

 The company’s CEO said he wants to expand that reach to “everywhere, within reason.”

 “We’ve had very good success in this last five or six years,” he said, adding the company has grown by a third since he took the reins. “We’ve not only grown the company at a very fast pace, but we’ve changed the profile of our growth.”

 What was once a largely domestic player has since evolved into a truly global chain. The pipeline was only 15% global as of five years ago. Today, projects planned outside of the United States account for 60% of future growth.

 Back then Hilton had 45,000 rooms under construction, 90% of which were in the U.S. Now 93,000 rooms are under construction, 80% of which are outside of the states.

 “We’re going to grow the company by another third, and we’re starting from this big base,” Nassetta said.

 Such growth requires the input of countless local partners, the CEO was quick to point out.

 “To be the sharp shooter, to have the market knowledge on real estate matters in all of those different locations is impossible,” he said. “Forget the capital needs; the capital needs would be dramatic and very difficult to deal with. But it’s more at its core about real estate experience, helping figure out what is the best location in that area. How do you get titled? How do you get it built and operating? …

 “You want to have local partner that invariably knows that a lot better than you can ever know that.”

Distributing leadership

 Just as Hilton is tapping into regional partners to accelerate growth, Nassetta is decentralizing leadership from the company’s McLean, Virginia, headquarters.

 “Then it is about distributing leadership. … We are working very hard always to push the decisions down,” he said.

 Nassetta has appointed presidents for each of the major regions around the world. “Day to day, they run those businesses,” he said.

 “My job is to make sure I give them those guardrails, that I create the right environment, the right culture for the enterprise and that I give them the right resources to do their job.”

 Fostering a healthy and vibrant culture is Nassetta’s No. 1 priority.

 “All of our success really begins with and ends with the culture of the company and the people of the company,” he said.

 Before the Blackstone acquisition, Hilton suffered from fragmented silos and misalignment. Everyone from executives to property-level associates were not serving with a common cause, Nassetta explained.

 The CEO’s first task when he came onboard was to fix that. He immediately set out to determine the Hilton mission, the Hilton vision. The company is much better now because of that, he said.

 “You need to have intense alignment around that. Everybody needs to know it … what we are, what we stand for and what are the key things we’re trying to get done. …

 “If you can do that … then you’ll succeed,” Nassetta said.

 Going East … and public

Nassetta said the decision to move Hilton’s headquarters from Beverly Hills, California, to McLean was the most difficult—and best—decision he’s ever made at the company.

 Beverly Hills was a beautiful locale, but it was also incredibly expensive and made for a poor quality of life for many of the corporate employees. The city was the “epicenter of complacency” that plagued Hilton at the time. It also made attracting top talent difficult.

 At the same time, moving thousands of miles east meant leaving behind a majority of employees.

 “But the most important (thing) … was culture,” he said. “We could not have done what we have done with this company in Beverly Hills.”

 The turnover helped in that regard. Approximately 80% of the people in McLean are new, which was part of what Nassetta called the company’s “cultural revolution.”

 Speaking of change, Nassetta was asked by moderator Gene Leone of Pircher, Nichols & Meeks about Hilton’s widely anticipated initial public offering.

 “At some point we were a public company, and we will be that again,” Nassetta said. “But we’re in no rush to do that.”

This article was reprinted in its entirety here on SpringUp Blog … Dave Hogg

Leave a comment

Filed under Uncategorized