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Q U A R T E R L Y U P D A T E
Second Quarter 2012
Quick Facts
2011 Occupancy Demand Growth Supply Growth Average Daily Rate Annual Change RevPAR Annual Change Revenue Growth 60.0% 5.0% 0.7% $101.64 3.7% $61.02 8.1% 8.9% 2012* 61.0% 2.0% 0.4% $106.02 4.3% $64.69 6.0% 6.4%
Recovery in the Employment Market to Continue. Employers added 823,000 jobs in the rst ve months of 2012, though job growth unexpectedly eased in the spring following a strong start to the year. Nevertheless, rising retail sales and corporate prots will help generate 2.2 million positions this year, a 1.7 percent gain. Nationwide, Hotels to Post Performance Improvements in 2012. A combination of steady room demand and limited construction will generate a 100-basis point rise in national occupancy in 2012 to 61 percent, the highest yearend level in ve years. Property operators will continue to push daily rates higher during the year, resulting in a 4.3 percent bump in the ADR, though value-conscious travelers will limit the increase. RevPAR will rise 6 percent this year on minimal additions to supply. Bulldozers and Construction Crews Mued. Hotel construction picked up at similar points in past cycles, but remains very subdued this time around. Rather than new rooms coming online, 17 states recorded a drop in available rooms over the rst four months of 2012.
* Forecast Sources: Marcus & Millichap Research Services, Smith Travel Research
6% 3% 0% -3% -6%
08
09
10
11
12*
Rising demand for goods and services have supported the expansion of payrolls for 20 consecutive months through May this year. While job creation in April and May came in less than expected, with only a net 146,000 positions added, several employment sectors have turned in notable performances recently. Employment at hotels, for example, has risen by more than 15,000 jobs so far this year as operators hire sta to handle additional guest volume. The lack of new hotel openings, however, has likely suppressed payroll growth in the sector. Elsewhere, employment in the natural resources and mining sector has expanded 7.9 percent, or by 61,000 workers, over the past year as oil and gas exploration has accelerated. The addition of workers continues to create acute needs for work force housing in areas where exploration is occurring. Meanwhile, job growth this year has lowered the national unemployment rate 30 basis points to 8.2 percent, a level that still remains high by recent standards. The relatively elevated unemployment rate continues to hold down labor costs for hotel operators as they add sta, but subdued wage and salary growth also encourage prospective travelers to comparison shop hotels when planning trips. Room Demand Continues to Strengthen as Developers Stand By Leisure and business travelers continue to ll rooms as hotel developers sit on the sidelines, elevating occupancy in a majority of markets and industry segments. Nationwide occupancy was 58.0 percent during the rst four months of 2012, as a 3.4 percent jump in room demand pushed up occupancy 170 basis points from one year ago. However, the 1.7 percent rise posted in April may signal the end of easy year-over-year comparisons to depressed or soft year-earlier periods. Room demand growth in 2010 and last year was extraordinary as measured by historical norms and the remainder of 2012 will see solid, but more typical, increases. Despite the longrunning surge in room nights, development has not appreciably picked up. Rooms available have risen a scant 0.3 percent year to date through April, including a 0.4 percent uptick during the month. Construction nancing remains more challenging to obtain than debt to acquire existing properties, and many lenders remain fearful of the immediate and potentially adverse eects of another economic slowdown on room demand. Even the planning pipeline remains thin, as approximately 300,000 rooms are either under construction or well along in planning, marking a 10 percent decrease from one year ago. However, some of the national brands with extensive pipelines of planned projects include Holiday Inn, with more than 17,000 rooms spread over its various price segments, and Hampton Inn, which has 7,000 rooms under consideration. Operators Making Higher ADRs Stick, Approaching Pre-Recession Peak Steady growth in room demand and occupancy are supporting higher daily rates. Year to date through April, the national ADR of $104.13 was 4.2 percent more than the level in the corresponding period last year. On a daily basis, Sundays and Mondays have posted the strongest gains, while the midweek Tuesday-throughThursday period has lagged slightly. The mild underperformance of this businessdominated stretch may reect the inuence of rates negotiated by large employers several months in advance and the greater tendency of small businesses to comparison shop. While the increase in the ADR from one year ago marks a notable and positive trend, the current level still falls 4.5 percent short of the high point attained before the recession. As the economy expands further and hotel operators continue to diligently raise rates, that previous high will likely be surpassed in 2013. RevPAR also continues along a positive trend, rising 7.5 percent in the year-to-date period to $60.41 as a 7.8 percent jump in room revenues easily exceeded the paltry rise in available rooms. On a statewide level, results vary widely depending on supply growth and drivers of room demand. Several states exceptional performance stand out this year, however, due to surging energy sectors.
Marcus & Millichap
7%
14%
21%
28%
*Through April 2012 Sources: Marcus & Millichap Research Services, Smith Travel Research
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70%
07
08
09
10
11
$100
Price per Room (thousands)
*Trailing 12 months Sources: Marcus & Millichap Research Services, CoStar Group Inc., RCA, Smith Travel Research
08
09
10
11
12*
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Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
David Luther National Director National Hospitality Group Tel: (713) 452-4200 dluther@marcusmillichap.com
The Small Business Administrations 7A and 504 programs continue to provide funding through banks and private lenders to small owner/operators for the acquisition of limited-service and economy hotels. Both the 7A and 504 programs permit qualied parties to borrow up to 90 percent of a propertys loan to value, subject to loan and liquidity thresholds. The 504 program also oers a renancing option, which is subject to congressional renewal at the end of September. Mezzanine debt and preferred equity sources have also emerged recently, and can provide funding to raise nancing from 75 percent to 85 percent LTV. Mezzanine debt lenders require returns varying from 9 percent to 13 percent, while preferred equity positions require IRRs starting in the high teens. Conduit lenders remain the primary option for borrowers seeking debt of more than $10 million. Loan terms start at seven years, with 20-year amortization schedules. LTVs typically vary from 50 percent to 60 percent, with interest rates generally varying from the high-4 to high-5 percent range. Strong locations and stabilized historical operations, brand aliations and qualied sponsorship are key considerations.
Market
North Dakota Indiana Illinois
Prepared and edited by
Occupancy Rate
70.7% 51.7% 55.2% 53.7% 60.2% 44.5% 78.4% 47.1% 45.5% 56.1% 64.0% 57.0% 58.0%
ADR
$95.76 $84.77 $98.64 $80.22 $80.80 $68.03 $204.49 $75.81 $85.88 $72.60 $109.40 $129.90 $104.13
RevPAR
$67.72 $43.81 $54.41 $43.10 $48.61 $30.30 $160.27 $35.68 $39.09 $40.75 $70.04 $74.00 $60.41
Art Gering
Senior Hospitality Analyst Research Services For information on additional research materials, contact
Tennessee West Virginia South Dakota Hawaii Montana Wyoming Oklahoma Louisiana Massachusetts U.S.
John Chang
Vice President, Research Services Tel: (602) 687-6700 ext. 6803 john.chang@marcusmillichap.com
Price: $75
* Year to date through April 2011 Sources: Marcus & Millichap Research Services, Smith Travel Research
The information contained in this report was obtained from sources deemed to be reliable. Every eort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Sources: Marcus & Millichap Research Services, CoStar Group, Inc., economy.com, Lodging Econometrics, PKF Consulting, Smith Travel Research.