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dc.contributor.authorLiu, Crocker H.
dc.contributor.authorNowak, Adam D.
dc.contributor.authorWhite, Robert M. Jr
dc.date.accessioned2020-09-09T17:01:00Z
dc.date.available2020-09-09T17:01:00Z
dc.date.issued2015-07-01
dc.identifier.other7349800
dc.identifier.urihttps://hdl.handle.net/1813/70925
dc.description.abstractHotel Investment based on operating performance has turned red. Our Economic Value Added (EVA) indicator shown in Exhibit 1 has turned negative, declining from -.6% (near zero; breakeven) to -1.8% in 2014Q1. What is more alarming is that the hotel cap rate (5.7%) is approximately equal to the cost of debt financing (5.6%) for hotels financed by large life insurance companies, as shown in Exhibit 2. Intuitively, the cap rate represents the return on hotel properties assuming all-equity financing. The use of debt financing is used to magnify the return to hotel properties. For positive leverage (return magnification) to occur, the cap rate should exceed the cost of debt financing, meaning that your return should be greater than your borrowing cost. We will show that the current situation arises because of cap rate compression (a decline in the cap rate) due to a rise in hotel prices. In summary, what these two exhibits suggest is that financial feasibility is becoming more tenuous and investors are having a harder time getting a potential hotel investment to “pencil out.”
dc.language.isoen_US
dc.relationSupplemental File: Hotel Valuation Model (HOTVAL). We provide this user friendly hotel valuation model in an excel spreadsheet entitled HOTVAL Toolkit as a complement to this report.
dc.relation.urihttps://hdl.handle.net/1813/72548.2
dc.rightsRequired Publisher Statement: © Cornell University. This report may not be reproduced or distributed without the express permission of the publisher.
dc.subjectCornell
dc.subjectreal estate
dc.subjecthotel prices
dc.subjectStandardarized Unexpected Price (SUP)
dc.subjectHOTVaL
dc.titleSecond Quarter 2015: Hotel Deals Are Getting Harder to Pencil Out
dc.typearticle
dc.description.legacydownloadsvol4_no3.pdf: 643 downloads, before Aug. 1, 2020.
local.authorAffiliationLiu, Crocker H.: chl62@cornell.edu Cornell University School of Hotel Administration
local.authorAffiliationNowak, Adam D.: West Virginia University


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