CHICAGO— As reported in, at a hotel investment networking conference earlier this year, several participants worried that a new supply of hotel rooms was saturating some US markets. But Marcus & Millichap, a commercial real estate firm, has just released a report showing that growing hotel room demand exceeds the rise in supply. In fact, M&M believes the US hotel sector is poised to reach new highs in occupied rooms and room revenue in 2014.

“When you look at specific markets, such as New York or Chicago, there are threats of oversupply,” Gregory A. LaBerge, vice president and national director of the firm's National Hospitality Group, tells But an expanding US economy has given a powerful boost to business and consumer spending, fueling hotel revenues and attracting investors.

For the fifth consecutive year, the hotel industry has experienced at least 10% growth in net operating income “and that has not happened in 30-plus years,” LaBerge says. M&M entered the third quarter of 2014 with 112 hospitality transactions closed at midyear, totaling more than $460 million in sales. This represented an 87% increase in transaction volume and a 110% increase in sales value over the same period in 2013.

“My sense is that we're growing a little bit faster than the industry as a whole because our team is growing,” he says. Still, M&M has offices in 38 markets across the country, and LaBerge believes this gives him a broad perspective. “There is a pretty solid consensus from the West Coast to the East Coast that the outlook for hotels is optimistic.”

The strength of the market has attracted all types of investors, including many first-timers. LaBerge points out that cap rates for many multifamily properties have sunk below 6%, but an investor can pick up stabilized hotels managed by seasoned operators with cap rates of 8% or even 9%. Once the Fed finally raises interest rates that could change, but for now hotels “are in the sweet spot of this cycle.”

In a typical deal, perhaps 20 potential buyers will express interest, and of these about 25% will have no experience in the hotel business, he says. “They might not win the bid, but they are forcing the people who are serious hoteliers to pay more.”

“This is a seller's market,” he adds. Significant transactions in 2014 for M&M's hospitality group include a 122-room Hilton Garden Inn built in 2009 in Indianapolis that traded for more than $116,000 per room, as well as the 109-room full service Holiday Inn in Webster, TX that traded above list price with multiple offers. Most owners “see this as a great time to monetize their property.”

Many owners have also decided now is the time to refinance. Marcus & Millichap Capital Corp., for example, recently arranged $30.8 million in refinancing for two hotels, a Hampton Inn in Arlington, VA and a Holiday Inn in Columbus, OH. “If you are an owner today and you are not considering a sale or a refinance of your asset you may be missing an opportunity.”


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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.