What is a Gateway City?: A Hotel Market Perspective
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The United States Office of Management and Budget designates 366 American cities as metropolitan statistical areas (MSAs).2 Fifty of these 366 MSAs contain the majority of the nation’s hotel rooms. For purposes of investing in these locations, hotel capital suppliers rely on ad hoc taxonomies to organize geographic markets along quality lines with labels such as toptier cities, secondary and tertiary cities, coastal cities, and gateway cities. Although high quality hotel investments exist in many markets, the presumption is that assets in top-tier and gateway cities exceed others as IRR generators. Despite widespread acceptance of common taxonomies, definitions that allow for inclusion and exclusion of cities among the various categories are fuzzy at best. More precision regarding the organization of metropolitan hotel markets might promote research on relative pricing of hotels and investment return premiums available in these markets and generally assist the industry in differentiating MSA hotel markets.