Many US hotel owners believe that during the past several months hotel values have moved sideways. However investors, looking to acquire lodging assets in today's market environment, hold that values have declined as much as 30%. With a sluggish sales market and profits still increasing, US hotel owners are under little, if any, pressure to sell. In theory, US hotel capitalization rates have risen during the recent past, but this increase has been somewhat neutralized by a simultaneous growth in hotel profits. I have not seen empirical evidence that supports the notion of erosion in US hotel asset values.

Interesting observations from our Q1 2008 survey when compared to Q1 2007 include:

• 23 US hotel trades of $10 million or more occurred during Q1 2008 compared with 20 during Q1 2007; the increased number of trades this year is somewhat of a surprise
• The average size hotel that traded in the Q1 2008 survey was roughly 190 rooms, with an average transaction price of approximately $32 million, and an average price per room of nearly $168,000. In comparison, the average size hotel sale in the Q1 2007 survey was roughly 400 rooms, with an average transaction price of approximately $120 million, and an average price per room of almost $300,000.

Clearly in the current market, the complexion of US hotel sales has dramatically changed. Relatively small hotel deals are getting completed, while the industry's ability to structure larger, institutional grade hotel sale transactions has been limited by capital market conditions. Further evidence of the change in the US hotel sale transaction market is illustrated by the following:

• Of the 23 Q1 2008 trades, only 1 transaction was for greater than $100 million, compared with 7 deals that were consummated during Q1 2007;
• 4 Q1 2008 US hotel sales transacted between $50 and $100 million, compared with 6 that were structured during Q1 2007;
• 8 Q1 2008 deals occurred for between $20 and $50 million, compared with 5 sales that were arranged during Q1 2007;
• 10 Q1 2008 trades were for between $10 to $20 million, compared with 2 sales that were negotiated during Q1 2007;

Apple REITS, a series of public non-listed REITS focused on the ownership of upscale, extended-stay and select-service hotels, dominate the current field of purchasers in the survey with 9 acquisitions (roughly 40% of the total) during Q1 2008

The US hotel investment market is visibly different today compared with this time last year, as credit market conditions have slowed down all types of commercial real estate. While mortgage debt continues to be relatively inexpensive, spreads have widened as loan to value ratios have declined. Furthermore, money is, now, only available for sponsors with proven track records of success in the highly specialized field of hotel ownership and management. Investors with little or no hotel investment and administration expertise, who entered the sector prior to the recent peak, are precluded from the space today. While the CMBS market has not been a capital source for the past nine months, insurance companies, and commercial, community, and foreign banks have back-filled the US hotel lending market.

Out of every financial crisis comes opportunity. Savvy hotel investors who are focused on the sector can prosper on the backside of this current softening in the US economy. It is in these disruptive periods that smart money executes their best-performing investment strategies. Lifecycle hotel investors know how to make money during all economic phases. In today's environment, purchasers of US hotels will need to rely more on "buying right" when going into a deal, because while income growth is anticipated to continue, it will be at lower rates compared with the recent past.