Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Tuesday, 11 June 2019

Hotel Sector Proves Resilient Despite Blips

The U.S. hotel industry has seen improved operating metrics for eight straight years. It's proven a relatively resilient property sector over the past two and a half decades. But because of its correlation with economic growth, it's the first to suffer in a downturn.

Commercial Real Estate Direct Staff Report

The U.S. hotel industry set records last year with a 66.2 percent occupancy, average daily rate of $129.89 and revenue per available room, or RevPAR, of $85.97, according to STR. It was the eighth straight year in which the three metrics had improved.

The sector's strong performance has coincided with a booming economy, as the unemployment rate has fallen below 4 percent and gross domestic product has increased every year since 2010.

Hotel performance is more closely tied to economic conditions than any of the other commercial real estate property types. In fact, JLL has found that since 1994, the correlation coefficient between hotel demand and U.S. GDP has been 0.97, meaning that the two are almost exactly correlated.

Because hotel leases are very short-term, lasting as little as a day, property performance is far more fickle than the other major sectors—office, multifamily, retail and industrial, where leases generally are signed for at least a year and often far longer.

So, while hotels generally are first to be impacted by an economic slowdown, they're also the first to recover. As such, major economic events have an outsized impact on hotels.

"We've seen the polar extremes of performance in the domestic lodging industry during the past 25 years," said Mark Woodworth, the national practice leader of CBRE Hotels' Americas research group.

       U.S. Hotel Performance and Supply (1994-2018)

STR1

                                                                       Source: STR Inc.

RevPAR had increased annually from 1992 through 2000, but it plunged by 6.7 percent to $49.91 in 2001 as a result of the Sept. 11, 2001, terrorist attacks and spillover from the dot-com bust.

"People were very, very reluctant to travel away from home and get on an airplane," Woodworth said.

RevPAR fell by another 2.4 percent in 2002 before starting to turn around. In 2003, RevPAR inched up by 0.4 percent and by 2005, it had increased by 8 percent from the previous year, to $52.82. That was just shy of the then-record $53.50 that was set in 2000. During the following three years, it increased by 8.6 percent, 7.7 percent and 6.1 percent, reaching $65.54 by the end of 2007.

Performance then skidded as the Great Financial Crisis (GFC) took hold, with RevPAR decreasing 2 percent in 2008 and by a record 16.6 percent the following year, to $53.55. Occupancy in 2009 was only 54.6 percent, a record low.

                        U.S. Hotel RevPAR (1994-2018)

STR2

                                                                       Source: STR Inc.

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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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