Lucey tells of one client that improved NOI by 90.3% from the prior year through aggressive yield management. Simplified examples of such strategies range from using the Internet to selling surplus rooms at the last minute--but at very high prices to business travelers that absolutely have to have a room in a city on a certain night--to increasing rates during conventions, he says. Tighter management of food and other services in the hotel is another example.

The upshot of this growing demand for hotel expertise is that threshold returns in JV structures are falling to favor the operators, says Mark Gordon, a principal with Sonnenblick Goldman in New York. A typical partnership between an equity partner and operating partner would be a waterfall structure in which the equity investor would get a pari passu return alongside the operating partner up until a certain threshold return level. After that, the returns are adjusted based on a perceived risk of the investment in favor of the operator.

"An operating partner's knowledge becomes part of the asset and it needs to be rewarded for its expertise," Gordon says. "There are a limited number of investors that have that level of knowledge and experience."

Over the past 24 months, threshold return levels have been dropping by several hundred basis points, he reports. Now the typical threshold return for a stable asset is in the 10% to 12% range. For a transitional asset, it is 12% to 15%.

Gordon predicts those numbers will continue to drop as the fundamentals in this asset category are expected to remain strong for the near future. "It is hard to generalize because each deal is unique--more so for hotels than other asset classes--but I think there is room for threshold returns to fall another 150 basis points."