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Hotel values drop average 5% in 1990.

Hotel values drop average 5% in 1990

Due to the economic downturn in the lodging industry, hotel values decreased during 1990.

According to the latest Hotel Valuation Index (HVI), hotel values in 1990 declined an average of 5 percent across the country. "Areas that experienced the greatest declines were Philadelphia, Norfolk, Boston, Riverside, Washington, DC, Anaheim, New York, Las Vegas, Los Angeles and San Diego," said Stephen Rushmore, president of Hospitality Valuation Services, Inc. (HVS) which publishes the HVI.

HVS, in association with Smith Travel Research, designed the HVI to provide hotel owners, lenders and operators a benchmark for tracking hotel value trends in individual market areas. The HVI provides an indexed market value of a typical hotel situated in 24 different regions of the country. This index has been calculated since 1986 to reflect value trends over a period of time.

The biggest losers recorded by the HVI were hotels located in Philadelphia which lost 19 percent of their value, followed by properties in Norfolk, Riverside and Boston which lost 18 percent, 15 percent and 15 percent respectively. The slowdown in the Northeast adversely impacted the values of Philadelphia, Norfolk and Boston.

Rushmore believes those hotels in cities that lost value were generally impacted by declining occupancies and room rates that did not keep up with inflation.

According to the HVI, the New York Metropolitan Statistical Area (MSA) experienced a 13 percent decline in hotel values during 1990. "The upward trend in New York city hotel values ended in 1989 when room revenue increases failed to keep up with inflation," Rushmore explained.

On the positive side, those areas that benefited from higher occupancies and room rates showed the greatest improvement in hotel values. "Hotels in Denver, Houston, Tampa, Atlanta, Minneapolis, Dallas, New Orleans, and Fort Lauderdale experienced increases in value during 1990," Rushmore added. Hotels in Denver and Houston had gains of over 40 percent in 1990.

While actual hotel values are the highest in Honolulu, New York, San Francisco, and Orlando, similar properties in Norfolk, Dallas, Denver and Minneapolis generally command the lowest prices.

In 1990, 19 market areas posted an HVI above the U.S average (1.0714) while five market areas fell below the U.S. average. This compares to 1986 when 18 markets outpaced the U.S. average in value and 6 markets fell below.

Between 1986 and 1990 the average hotel in the United States experienced a 7 percent positive value change. According to the HVI, Houston is near the bottom of the list for value per room during this period, yet it ranks in value recovery by gaining 210 percent. Hotels in Orlando, New Orleans, Honolulu, Tampa and Miami also experienced impressive gains during 1986 and 1990.

"Hotel values change over time due to differing earnings, expectations and capitalization rates," Rushmore added. "The HVI is designed to illustrate these changes and quantify the amount of variance attributable to movements in both earnings and costs of debt and equity capital."

Rushmore believes that as long as interest rates remain level, the economy does not decline any further and owners of distressed hotels do not attempt to dump their losers on the market, hotel values in 1991 should generally remain level or show modest improving trends for most areas of the country.

"Because financing is generally unavailable and transactions are difficult to structure, owners of hotels should hold on to their properties for the next two to four years," Rushmore said. "Hotel values seem to be bottoming out and investors may have a good opportunity to pick up some real bargains."

The 1990 Hotel Valuation Index focuses on 24 different market areas, as well as the country as a whole. This publication provides the HVI values for each market from 1986 through 1990 as well as an in-depth overview of the 24 individual markets.
COPYRIGHT 1991 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Real Estate Weekly
Date:Jun 26, 1991
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