It appears that the hotel industry has at least bottomed and lately has seen rising revenues in many markets. Values are down 40%-50% from the 2007 peak and they have barely begun to rise yet. The decline of 19% peak to trough of Revpar was the worst in history of the US. In short, it appears we are at the bottom of the worst downturn hotels has ever experienced and it is the right time to be getting back in so long as you understand this is not a quick hit, but a 4-5 year cycle play.

Unlike office and retail, which are still suffering space reductions by major tenants and rent reductions which will last several years due to the longer leases, hotels can turn on a dime, good or bad. If you believe that this is the bottom, or even close to it, then hotels offer a better return than office or retail, and residential over the near term. The investors who will harvest high returns, are those who team up with top quality highly experienced managers, who have the cash to fund PIPs-renovations. The brands have been allowing owners to defer the property improvement plan requirements for the past two years, and it will be those who have the cash now to upgrade their properties, who will reap the biggest rewards over the next several years.

Many owners have depleted the FF&E reserve just to pay debt service, and they are not able to replenish it even with a loan modification because NOI is still not nearly at a level which allows sufficient cash to be set aside. As the economy recovers and as hotel occupancy improves, it will be the renovated properties and those bought at discounts that win the competitive battle. If you buy a hotel at a lower cost than the owner down the road paid in 06-or 07 to build or buy his hotel, and you have the cash to do the PIP, then you can attract the guests and charge competitive rates to the nearby hotel which is saddled with the high leverage loan and unable to do the PIP