High-End Properties Slowing in Gains reports Park Shore Resort
Cornell research notes final quarter of 2012 not grand for high-end hotel properties
While prices for smaller hotels have appeared to be on the rise yet again, the larger properties seem to not be keeping up. Moreover, as a result of moderating growth of price for all high-end hotels, the general construction costs for the new quality hotels are now equal to the price of the existing high-end hotels.
Add that fact to the knowledge that income has begun to decline, the price of growth for both large/small properties has begun to slow, and one sees key points for analysis found in the latest Cornell Real Estate Market Indices.
The analysis has covered the fourth quarter of 2012, and details the numbers in "Cornell Hotel Indices, Fourth Quarter 2012—Price Growth Is Moderating: A Return to Normalcy?," by Crocker H. Liu, Adam D. Nowak, and Robert M. White, Jr. Liu is the Robert A. Beck Professor of Hospitality Financial Management at the Cornell School of Hotel Administration, Nowak is an assistant professor at West Virginia University, and White is founder and president of Real Capital Analytics, which provides data for the Cornell Indices. Other data are drawn from the CoStar database.
We found that the fourth quarter was an active period for both large and small hotel transactions," said Liu. "Our break point for a large deal is a price of $10 million or more, and we recorded 75 large transactions in the fourth quarter 2012. That was a 74 percent increase from the same time in 2011. Small transactions increased 21 percent over the previous year's fourth quarter to 138 sales. In all that activity, though, the price trends seem to be changing and the net operating income gains are clearly fading, both for large and small properties. So, as a result, we expect the prices for small deals to start easing off even though the momentum was favorable in the last quarter. This doesn't mean that price growth is ending. It's just slowing down."
The analysis also points to the hotel properties having to experience a widening of overall premium relative to other types of property. The increase on premium for hotels signals investors' perceptions of both higher- and lower-quality hotel properties.
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