I've just come from the Lodging Conference where there was the usual hype about how great the industry is doing. Some even called it the Golden Age for hotels. Some said it has never been better, and generally they made it sound like hotels are booming. Here is a reality check. The hotel industry just this past year reached the same level of NOI adjusted for inflation that is had hit in 2007. Eight years to get back to zero on the index base line. That is the worst performance of any commercial property type other than industrial which is only slightly behind. Most other commercial property types are well ahead and have been since 2013. The same data applies to property values. Hotels have only just reached inflation adjusted values reached in 2007. In both cases many other property types are well ahead of 2007 levels. If you say that hotels are really a business and not real estate then the comparison is even worse. Using the S&P 500 earnings as a proxy for all industries it has far out performed lodging. All of this raise the risk adjusted return issue. Lodging decreased in NOI and value far more than possibly any other industry in 2009. Cap rates on hotel transactions are roughly 200 basis points higher than cap rates for other property types reflecting the increased risk observed by investors.

At the Lodging Conference and in many data based articles, industry pundits rave about how Revpar is seeing sizable increase of 6% or more. The never talk about NOI at data conferences nor at investment conferences because those facts are not conveying a optimistic sense and revenue is much more fun to discuss even though it is somewhat irrelevant. Revenues is just the start point for a projection. It is a nice clean number and lately conveys optimism which is what speakers are supposed to do at industry conferences. I tend to prefer to focus on return on investment when I speak at investment conferences. Reality. It is why I have been told that most conference sponsors no longer invite me. Who wants reality when revpar is much more optimistic to talk about when it is going up by 6% or more. Reality is hotels financial results went down so far in 2009 that any increase since looks great by relative comparison to itself.

Hotels have had a slow run up to parity with 2007 and now the pundits and promoters want us all to think this is the “golden age”, because they do not want to look at inflations adjusted NOI or true values. One appraisal firm puts out a value analysis claiming numbers that are not real. They us 25 make believe hotels in 25 markets and then average the make believe hotels' numbers and come with an average of make believe numbers and put them in an index and then they claim values are way up. The data are all assumed hotels and assumed numbers. None of it is real transactions. This is what passes for data at hotel industry data conferences and investment conferences. The same people claim supply is only growing by 200,000 rooms per year. They pointedly ignore Airbnb and its over 250,000 rooms added to supply. They make it seem like supply is muted when it really increased by double what they claim. Airbnb is growing rapidly and is the largest hotel company by rooms and by market value, but some of the data people make believe it does not exist. Only PKF seems to have done the research to understand this new entrant. The industry association thinks it can fight Airbnb with pushing for lots more regulation and taxes. That is what taxi owners and record companies thought along with all the other industries that have been disrupted.