Increasing Asset Performance Translates Into Increasing Hotel Values.

Even though RevPAR has been showing gains over the past several years, lenders have remained conservative – at least when it comes to hotels. The good news is, hotel performance has improved, mainly because little new supply has come onto the market so existing hotels haven’t had to compete.

Now that those top-line numbers have started to grow, borrowers have been able to improve their bottom line as well because they’re getting more rate and increased profitability on their hotels. So as those trends have continued, the values on hotels have started to come up, because you’re applying your cap rate calculations to higher NOIs.

Despite that brightening picture, lenders still seem to remember when things went sideways and hotels were a tough industry to lend to. That should ease as group travel and commercial travel, some of the highest-ADR types of business, come back. Once companies begin adding employees again, travel will reenter the picture – and lending will loosen up.

Higher performance, of course, translates to higher value, and some markets do better than others. A strong flag in a good location in a gateway city with typically high barriers to entry usually equates to success – and rosy financing prospects. Even markets within markets vary. But when it comes down to soup to nuts, that individual hotel and its performance, its flag, its market, are what buyers and lenders look at.

-Greg Morris