29
5/12/2017 1 Suzanne Mellen, MAI, CRE, FRICS, ISHC | Practice Leader [email protected] | (415) 268-0351 Hotels Values & Cap Rates
5/12/2017 1
Suzanne Mellen, MAI, CRE, FRICS, ISHC | Practice Leader
[email protected] | (415) 268-0351
Hotels Values & Cap Rates
5/12/2017 2
UNCERTAINTY
5/12/2017 3
Historical Sales (Total Sales $2.5M+)
Source: HVS, RCA
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$0
$20
$40
$60
$80
$1002006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2016 Q
1
2017 Q
1
Pri
ce P
er
Key
$ i
n B
illi
on
s
Sales Volume ($2.5M+ in Billions) $2.5M+ Price Per Key
5%
2%
5/12/2017 4
Year-over-Year Transaction Volume Change
Source: RCA
201720162015201420132011 2012
5/12/2017 5
Total Hotel Quarterly Transaction Volume
Source: RCA
201720162015201420132011 2012
5/12/2017 6
Total Hotel Quarterly Transaction Volume
Source: RCA
201720162015201420132011 2012
5/12/2017 7
Q1 2017 Quarterly Volume Breakdown
Source: RCA
Volume
($ Billions)YOY
Hotel Total 5.8 -6%
Full-Service 3.9 1%
Limited-Service 1.9 -18%
Single Asset 4.8 -8%
Portfolio 1.1 3%
Major Metros 1.8 -10%
Secondary Markets 2.3 -22%
Tertiary Markets 1.7 39%
5/12/2017 8
Net Investment Q1 2017
Source: RCA
5/12/2017 9
Most Active Markets
Source: RCA
2015 2016 2017 (YTD)
Metro Area Vol ($)
#
Props Vol ($)
#
Props Vol ($)
#
PropsNYC Metro $8,034,510,135 75 $5,927,717,497 90 $129,460,000 5
SF Metro $3,577,877,103 63 $3,590,355,396 44 $481,554,997 13
LA Metro $3,733,978,209 102 $2,314,254,297 78 $770,031,234 27
Miami/So Fla $2,561,661,699 72 $1,804,867,438 45 $84,700,000 4
Chicago $1,918,151,675 55 $2,012,337,565 43 $192,434,255 10
DC Metro $1,253,381,841 44 $1,668,426,922 46 $373,347,500 9
Honolulu $181,980,000 5 $1,152,701,169 6 $565,000,000 2
Boston Metro $1,428,216,414 56 $1,199,686,195 35 $73,200,000 3
Orlando $2,282,060,216 47 $499,228,565 31 $61,525,000 5
All Others $24,190,898,991 1,869 $16,168,596,004 1,439 $3,944,018,564 310
5/12/2017 10
Most Active Markets
Source: RCA
2015 2016 2017 (YTD)
Metro Area Vol ($)
#
Props Vol ($)
#
Props Vol ($)
#
PropsNYC Metro $8,034,510,135 75 $5,927,717,497 90 $129,460,000 5
SF Metro $3,577,877,103 63 $3,590,355,396 44 $481,554,997 13
LA Metro $3,733,978,209 102 $2,314,254,297 78 $770,031,234 27
Miami/So Fla $2,561,661,699 72 $1,804,867,438 45 $84,700,000 4
Chicago $1,918,151,675 55 $2,012,337,565 43 $192,434,255 10
DC Metro $1,253,381,841 44 $1,668,426,922 46 $373,347,500 9
Honolulu $181,980,000 5 $1,152,701,169 6 $565,000,000 2
Boston Metro $1,428,216,414 56 $1,199,686,195 35 $73,200,000 3
Orlando $2,282,060,216 47 $499,228,565 31 $61,525,000 5
All Others $24,190,898,991 1,869 $16,168,596,004 1,439 $3,944,018,564 310
5/12/2017 11
Q1 2017 Hottest Urban Market?
Mar 2017
222 Rooms
$89,000,000 or
$400, 901 PPK
Hilton Garden Inn
Source: RCA
Feb 2017
153 Rooms
$79,000,000 or
$516,340 PPK
Pan Pacifica Hotel
Mar 2017
109 Rooms
$71,625,000 or
$657,110PPK
Alexis
5/12/2017 12
Most Notable Sales
Source: RCA
Westin Maui Resorts
& Spa Ka’anapali
$317,000,000
$417,655 PPK
W Hollywood Hotel
$219,000,000
$718,033 PPK
Intercontinental
Mark Hopkins
$173,000,000
$451,697 PPK
5/12/2017 13
Most Notable Sales
Source: RCA
JW Marriott Desert
Springs
$160,000,000
$180,995 PPK
Park Hyatt
Beaver Creek
$145,500,000
$765,789 PPK
5/12/2017 14Source: Investment Banking Bulletins, SEC, HVS
Portfolio Sales Remain Muted
Source: RCA, CoStar, HVS, Hotel Online, Published Sources
Portfolio Name Price/Room Buyer Seller
Cohen Realty Portfolio Mar-17 3 326 $54,750,000 $167,945 11.1 8.6 %Condor Hospitality
Trust Inc.
Cohen Realty
Investment, Inc.
Watermark Portfolio Feb-17 3 369 33,000,000 89,431 -- -- Hawkeye Hotels
Carey
Watermark
Investors 1, Inc.
Hersha Portfolio Jan-17 3 434 130,499,989 300,691 12.4 7.8 Shidler GroupHersha
Hospitality Trust
Blackstone Portfolio Jan-17 3 782 124,000,000 158,568 12.0 8.0
American Hotel
Income Propert ies
REIT
The Blackstone
Group LP
Noble Investment Portfolio Jan-17 6 754 80,250,000 106,432 9.6 10.0Phoenix American
Hospitality
Noble
Investment
Group
Date
No. of
Properties
No. of
Rooms Price
EBITDA
Multiple1
Cap
Rate1
1 EBITDA mult iples based on EBITDA before a deduct ion for replacement reserves. Capit alizat ion rat es based on NOI, which is equivalent t o
EBITDA aft er a deduct ion for replacement reserves. Therefore, t he EBITDA mult iples are not t he inverse of t he capit alizat ion rat es. NOI was
adjust ed t o EBITDA using an assumed replacement reserve of 4%.
5/12/2017 15
PWC RE Investor Survey Cap Rate Trend Data
4.0%
6.0%
8.0%
10.0%
12.0%
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
Full-Service Lodging
Luxury Lodging
Select-Service Lodging
Limited-Service Lodging
Regional Mall
CBD Office
Suburban Office
Apartment
Source: PWC
5/12/2017 16
Cap Rates Trends – Sales Transactions
Source: RCA
5/12/2017 17
PWC RE Investor Survey Cap Rate Trend Data
6.0%
8.0%
10.0%
12.0%
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
Full-Service Lodging
Luxury Lodging
Select-Service Lodging
Limited-Service Lodging
Source: PWC
5/12/2017 18
Sale Derived Cap Rates and 2017 Projection
Source: HVS
Full-Service Including Luxury
Select-Service & Extended Stay
Limited-Service
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2011 2012 2013 2014 2015 2016 2017f
5/12/2017 19
Going-In Cap Rate Spread Tightening
Source: HVS
4.0
6.0
8.0
10.0
12.0
14.0
16.0
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
% P
erc
en
tageCap Rate based on Historical
NOI
Cap Rate based on 1st Yr.Projected NOI
Free and Clear Discount Rate
5/12/2017 20
Discount Rate and Cap Rate Spread Declining
Source: HVS
4.0
6.0
8.0
10.0
12.0
14.0
16.0
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
% P
erc
en
tageCap Rate based on Historical
NOI
Cap Rate based on 1st Yr.Projected NOI
Free and Clear Discount Rate
5/12/2017 21
Cap Rates Derived from Sales of Hotels in 2016*
7.0% 7.5%
10.2%
17.7%
8.3% 8.7%10.9%
19.5%
9.1% 9.9%12.0%
20.7%
Historical NOI 1st Year NOI Discount Rate Equity IRR
Full Service SS & ES Ltd. Service
*Hotels appraised by HVS at time of sale
5/12/2017 22
Terminal Cap Rates Rise Modestly
Source: PWC
7.0
8.0
9.0
10.0
11.0
12.0
13.0
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
Term
ina
l Ca
p R
ate
(%
)
PWC - Full-Service PWC - Limited-Service Situs RERC - First Tier
Situs RERC - Second Tier PWC - Select-Service Situs RERC - Third Tier
5/12/2017 23Source: Investment Banking Bulletins, SEC, HVS
Implied REIT Cap Rates
00000000000000000000000000000
Source: HVS
9.0%
12.5%
6.6%5.1%
6.5%6.3% 7.0% 7.2% 8.3% 7.5% 7.8%
REITS – Cap Rates Rise Modestly
5/12/2017 24Source: Investment Banking Bulletins, SEC, HVS
Implied REIT Cap Rates
REITS – Cap Rates Rise Modestly
Source: HVS
9.0%
12.5%
6.6%5.1%
6.5%6.3% 7.0% 7.2% 8.3% 7.5% 7.8%
5/12/2017 25Source: Investment Banking Bulletins, SEC, HVS
NOI Per Room:
Upside, Baseline, Downside Scenarios
Source: HVS
10,000
12,000
14,000
16,000
18,000
20,000
2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27
Downside Stable Upside
5/12/2017 26Source: Investment Banking Bulletins, SEC, HVS
NOI Per Room:
Upside, Baseline, Downside Scenarios
Source: HVS
Value Per Room
TTM Cap Rate
1st Year Cap Rate
Discount Rate
Terminal Cap
Terminal Value/Rm.
Ten-Year Value Change
Downside
$143,000
8.5%
8.7%
10.5%
9.0%
179,000
25%
Baseline
$150,000
8.0%
8.3%
10.5%
9.0%
186,000
24%
Upside
$161,000
7.5%
7.7%
10.6%
9.0%
202,439
26%
Baseline to Downside 19%
Baseline to Upside 35%
5/12/2017 27
Equity IRR: Upside, Baseline, Downside
Scenarios
Loan/Value 65%
Amortization 30
Term 10
Interest Rate 5.00%
Terminal Cap Rate 9.00%
Transaction Costs 3.0%
Underwritten Equity IRR 18.0%
Equity IRR with Upside Performance 20.1%
Equity IRR with Downside Performance 16.4%
5/12/2017 28
Where are we?
Higher GDP Growth
Higher Inflation
Tax Laws Favoring Real Estate
Looser Lending Standards
Reduced Regulation
Up
sid
e
Fa
cto
rLate in Cycle – Risk of Recession
Labor – Shortage & Increased Cost
New Supply
Industry Disruptors
Socio/geopolitical Risks
Do
wn
sid
e
Fa
cto
r
5/12/2017 29Superior results through unrivalled hospitality intelligence. Everywhere
Any Questions?
Suzanne Mellen, MAI, CRE, FRICS, ISHC
Practice Leader
[email protected] | (415) 268-0351
