The following statements summarize the findings of PKF Consulting’s 2010 Hospitality Investment Survey.

Investment Criteria

  • Overall hotel capitalization rates have declined 32 basis points from 2009 to 2010. We attribute the decline in hotel cap rates to the over-weighted influence of high-priced urban and luxury hotel transactions.
  • Hotel cap rates are above 10 percent for extended-stay and select-service properties. While these property types are extremely popular with guests, they are also preferred by developers and run the risk of increased competition.
  • Older limited- and full-service hotels are being traded at high cap rates because they are most vulnerable to the surge in newer mid-market properties.
  • Cap rates are lowest for hotels in top-tier markets, indicating a belief that the greatest recoveries will occur in the nation’s urban areas.
  • The holding periods for sellers dropped significantly indicating the presence of opportunistic buyers in search of bargains who in turn re-sell them quickly rather than hold as a long-term investment.

Mortgage Criteria

  • Hotel debt coverage ratios have increased since 2009, indicating a further tightening of underwriting standards.
  • Hotel loan to value ratios are at an all-time low, meaning investors must put up substantially more equity to get a deal done.
  • For buyers that qualify for a loan, interest rates remain relatively low and the length of the loan has risen slightly.

Readers will find the following variables in the Hospitality Investment Survey report.

  • Hotel Cap Rate, Trailing 12 (NOI)
  • Hotel Cap Rate, Forward 12 (NOI)
  • Hotel Cap Rate, Terminal (NOI)
  • Hotel IRR / Discount
  • Hotel Equity Yield
  • Hotel Cash-on-Cash Return
  • Holding Period (years)
  • Hotel Loan-to-Value Ratio
  • Hotel Interest Rate
  • Hotel Amortization Period (Years)
  • Hotel Loan Term (year of balloon)
  • Hotel Debt Coverage Ratio

To purchase a copy of the 2010 Hospitality Investment Survey, please visit .

PKF Consulting offers hotel appraisal and hotel valuation services, hotel market studies, hospitality litigation support, and hotel advisory services. PKF Capital offers hotel brokerage and hotel transaction services. PKF Hospitality Research produces Hotel Horizons®, an econometrically based hotel forecast, Benchmarker, a customized comparative hotel benchmark report, and Annual Trends®, a historical hotel financial publication, as well as hotel research services.