GlobeSt.com: Please expand on the factors that you believe have been causing the recent decline in hotel valuations.

Muoio: It appears that investors have soured on this segment some after riding it to record values. The Ten-X CRE nowcasts incorporate three sets of information: Google trends, bidding activity on our platform and surveys of investors for which we have teamed up with Situs/RERC a leader in this area.  The surveys are done constantly over the course of each month, so we can see how sentiment is changing on a weekly basis. One of the things we have been seeing is a significant downshift in that sentiment, regarding the outlook for hotel cap rates and expected returns. This does not surprise me because RCA data shows deceleration in deal volume. Also, while the segment remains very healthy, obvious cause for concern about future trends include the strong dollar, weak economies in many of the countries that are sources of foreign visitors and a pickup in development in a few major markets.

GlobeSt.com: Where do you see this trend going in a cycle where most other property-sector valuations have been climbing?

Muoio: What has been interesting to watch is that the different segments have definitely been on very different paths. While all have been increasing, the pace has varied considerable. Now, perhaps we are seeing things realigning among segments. So, the industrial nowcast shows a sharp pickup in valuations for that segment, which has lagged the others, sort of book-ending the slip in the hotel nowcast, which has been ahead of all the other segments. Investors rotate into and out of segments and markets as return opportunities ebb and flow, so this realignment may continue in the coming months.

GlobeSt.com: How could continued declines in valuation affect the hotel sector, and will it affect other sectors as well?

Muoio: I am not sure if we will keep seeing monthly declines. I think the better bet is that what we are seeing is more of a re-evaluation and that we will see more-moderate increases following the super-robust ones that the segment has enjoyed. In terms of other segments, perhaps the laggards—like industrial, as I have already mentioned, but maybe also retail and office (though those two have persistent issues with fundamentals)—will play catch-up. 

GlobeSt.com: What else should our readers know about the hotel sector?

Muoio: Hotel operating fundamentals are incredibly strong. Occupancy stands above 71%, a near record level for the industry, and room rates are increasing strong, leading to solid RevPAR gains.  Our forecast is for further improvement in hotel operating conditions, just at a slower pace than the last few years. Hotel valuations have had a major run-up, so while the declines indicated by the nowcast are important, I do not think it is end game for the hotel segment.