I’ve just come from the Lodging Conference where there was the usual hype about how great the industry is doing. Some even called it the Golden Age for hotels. Some said it has never been better, and generally they made it sound like hotels are booming.  Here is a reality check. The hotel industry just this past year reached the same level of NOI adjusted for inflation that is had hit in 2007. Eight years to get back to zero on the index base line. That is the worst performance of any commercial property type other than industrial which is only slightly behind. Most other commercial property types are well ahead and have been since 2013. The same data applies to property values. Hotels have only just reached inflation adjusted values reached in 2007. In both cases many other property types are well ahead of 2007 levels. If you say that hotels are really a business and not real estate then the comparison is even worse. Using the S&P 500 earnings as a proxy for all industries it has far out performed lodging. All of this raise the risk adjusted return issue. Lodging decreased in NOI and value far more than possibly any other industry in 2009. Cap rates on hotel transactions are roughly 200 basis points higher than cap rates for other property types reflecting the increased risk observed by investors.

At the Lodging Conference and in many data based articles, industry pundits rave about how Revpar is seeing sizable increase of 6% or more. The never talk about NOI at data conferences nor at investment conferences because those facts are not conveying a optimistic sense and revenue is much more fun to discuss even though it is somewhat irrelevant. Revenues is just the start point for a projection. It is a nice clean number and lately conveys optimism which is what speakers are supposed to do at industry conferences. I tend to prefer to focus on return on investment when I speak at investment conferences. Reality. It is why I have been told that most conference sponsors no longer invite me.  Who wants reality when revpar is much more optimistic to talk about when it is going up by 6% or more. Reality is hotels financial results went down so far in 2009 that any increase since looks great by relative comparison to itself.

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