There appears to be a slowing of the surge in values and improvement in revenue in the hotel sector in percentage gain terms. I believe this will show to be the case in all sectors. That is not to say there is not still improvement, just a slowing in the rate of recovery. In hotels the forward booking rates of growth in occupancy and rate are slowing materially, although still headed in the right direction. It is hard to determine yet if it is simply a mathematical issue of any growth initially was large in percentage terms given how low Revpar got, or if it is also a slowing of growth due to the economy remaining sluggish. I suspect it is both. There was an initial burst of optimism after the election and the tax bill in December. In January many people seemed to believe there really was hope Obama had moved to the center and that there would be genuine progress on the budget, the deficit, regulatory madness, and many other issues including Obamacare. It is now clear the shift to the center by Obama was nothing more than a head fake and Elizabeth Warren is on the verge of running rough shod over the financial services industry despite her supposed charm offensive in meetings with bankers around the country. Watch what they do not what they say. Her staff is made up primarily of activists with a political agenda and who have never worked in finance. They seem to be out for retribution and not constructive improvement.

There is a very clear decline in optimism on the part of the average consumer, and that is further aggravated by the continued decline in house values and the rise in foreclosures. Wages are not going to rise anytime soon, and unemployment will not materially improve for several years. It is getting better, but not at a speed that is needed to really move economic growth at the pace we need to really impact real estate values in the short run.

While values have improved, it is more noted in major markets like New York with too much capital chasing very few deals, and cap rates already down to levels that are quite simply ridiculous for investors who may be short term holders. In the rest of the country, the secondary and other cities and towns, not much has changed. It stopped getting worse, but the kinds of value improvement seen in major markets is simply not there. The clear bifurcation of financing markets has a lot to do with that. The bifurcation is most apparent in comparing the Green St index with the Moody’s index. Green St tracks mainly larger and more major market REIT and similar acquisitions, while Moody’s tracks all deals down to $2.5 million. The Moody’s numbers are much more reflective to the national market as a whole, and that is not showing real growth in value. In fact the difference between the indexes clearly points up the difference between major market transactions and the averages overall.