Beware the Ides of March
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Liu, Crocker; Nowak, Adam; White, Robert Jr
The price of large hotels fell by .25 percent, while that of smaller hotels increased 3.3 percent this quarter. On a regional basis, the MidAtlantic had the best quarterly gains, with the Pacific region also doing well, while the Midwest suffered price declines. Hotels in both gateway and non-gateway cities continue to post positive performance, with greater gains for hotels in non-gateway cities. Transaction volume declined this quarter (from the previous quarter), although it was still stronger relative to the same quarter last year. Our moving average trendlines indicate that both large and small hotels are priced to buy. Large hotels continue to decline, while smaller hotels are rising, based on our standardized unexpected price (SUP) performance metric. In terms of financing hotels, mortgage-financing volume continued to rise, although the cost of financing hotels rose sharply this quarter. The relative risk premium has remained stationary this quarter, although the hotel delinquency rate has declined along with the riskiness of hotels compared to other major types of commercial real estate. Hotel deals continue to look profitable based on our economic value added (EVA) and shareholder value added (SVA) metrics, although they are nearing breakeven. Looking toward the next quarter, our leading indicators of hotel price performance indicate that in the near term we should expect slower or declining price momentum for both large and small hotels.
hotels; pricing; gateway cities
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