Hotel Valuation and Transaction Trends for the U.S. Lodging Industry

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1 Hotel Valuation and Transaction Trends for the U.S. Lodging Industry June 2010 Presented by Steve Rushmore, MAI, FRICS, CHA - 1 -

2 Value Trend for a Typical U.S. Hotel Value Per Room $37,000 $37,000 $38,000 $32,000 $27,000 Percent Change 0.0% 2.7% -15.8% -15.6% 1992 $30, % Value Per Room $33,000 $37,000 $45,000 $50,000 $59,000 $60,000 Percent Change 10.0% 12.1% 21.6% 11.1% 18.0% 1.7% Value Per Room $61,000 $69,000 Percent Change 1.7% 13.1% Value Per Room $82,000 $100,000 Percent Change 26.2% 22.0% $52,000 $52,000 $51, % 0.0% -1.9% 2004 $65, % $95,000 $81,000 $56,000 $56, % -14.6% -31.3% 0.0% Value Per Room $67,000 $83,000 $103,000 $119,000 $130,000 Percent Change 21.1% 23.3% 24.3% 15.5% 9.0% - 2 -

3 Change in Value Per Room: 2009 Rank 1 New York (-$258,000) 2 Las Vegas (-$118,000) 3 Miami (-$88,000) 4 Chicago (-$79,000) 5 San Francisco (-$67,000) 6 Los Angeles (-$63,000) 7 Phoenix (-$63,000) 8 San Jose (-$59,000) 9 San Diego (-$48,000) 10 Tucson (-$48,000) Rank 43 Albuquerque (-$13,000) 44 St. Louis (-$12,000) 45 Memphis (-$11,000) 46 Cleveland (-$11,000) 47 Baltimore (-$9,000) 48 Cincinnati (-$9,000) 49 Norfolk (-$7,000) 50 Buffalo $0) 51 Pittsburgh $13,000) 52 Washington DC $20,000) 22 United States (-$25,000) - 3 -

4 Projected Change in Value Per Room: 2010 Rank 1 New York $70,000 2 Miami $47,000 3 Oahu $35,000 4 Boston $34,000 5 Seattle $16,000 6 Denver $16,000 7 San Francisco $15,000 8 Los Angeles $14,000 9 Baltimore $13, Portland $11,000 Rank 43 Detroit (-$5,000) 44 Chicago (-$6,000) 45 Milwaukee (-$6,000) 46 Pittsburgh (-$6,000) 47 Houston (-$7,000) 48 Washington DC (-$7,000) 49 Tampa (-$9,000) 50 Raleigh-Durham (-$16,000) 51 Norfolk (-$16,000) 52 Las Vegas (-$16,000) 38 United States $0-4 -

5 Decline: From 2006 to 2010 (Percentage) Rank 1 Las Vegas -84% 2 Tampa -76% 3 Sacramento -76% 4 Tucson -75% 5 Phoenix -73% 6 Norfolk -72% 7 Detroit -67% 8 Jacksonville -61% 9 Chicago -61% 10 Milwaukee -61% Rank 43 Albuquerque -28% 44 Boston -27% 45 Cincinnati -26% 46 Buffalo -26% 47 San Francisco -22% 48 Pittsburgh -21% 49 Denver -17% 50 Portland -15% 51 Austin -13% 52 Washington DC -9% 24 United States -44% - 5 -

6 Recovery: From Low Point to 2015 ($ Per Room) Rank 1 New York $401,000 2 Miami $178,000 3 San Francisco $164,000 4 Oahu $160,000 5 Las Vegas $152,000 6 New Orleans $146,000 7 Boston $137,000 8 Fort Lauderdale $133,000 9 Los Angeles $122, Chicago $117,000 Rank 43 St. Louis $46, Albuquerque $45, Milwaukee $45, Cleveland $44, Memphis $44, Richmond $44, Dallas $42, Kansas City $38, Cincinnati $35, Detroit $33, United States $75,

7 Recovery: From Low Point to 2015 (Percentage) Rank 1 Las Vegas 434% 2 Tampa 364% 3 Norfolk 294% 4 Tucson 280% 5 Sacramento 273% 6 Phoenix 215% 7 New Orleans 209% 8 New York 205% 9 Oakland 176% 10 Detroit 165% Rank 43 Oahu 68% 44 Houston 66% 45 Salt Lake City 65% 46 Dallas 65% 47 Portland 64% 48 Denver 60% 49 Pittsburgh 58% 50 Anaheim 53% 51 Austin 51% 52 Washington DC 41% 20 United States 134% - 7 -

8 Top Value-Per-Room Cities 2009 Washington DC $237,000 Oahu $265,000 San Francisco $233,000 New York $196,000 Boston $191,000 Miami $160,000 San Diego $146,000 Los Angeles $129,000 Austin $125,000 Seattle $119, New York $597,000 San Francisco $397,000 Oahu $397,000 Washington DC $341,000 Miami $338,000 Boston $328,000 San Diego $256,000 Los Angeles $251,000 Seattle $225,000 Fort Lauderdale $217,

9 Average Annual Compounded Growth in Value: 1987 to 2015 Rank 1 Miami 10.2% 2 New York 9.3% 3 Austin 9.2% 4 Omaha 9.1% 5 Houston 7.0% 6 Las Vegas 6.8% 7 Denver 6.6% 8 Fort Lauderdale 6.2% 9 Oahu 6.0% 10 New Orleans 5.8% Rank 43 Milwaukee 2.8% 44 Orlando 2.8% 45 Kansas City 2.6% 46 Philadelphia 2.5% 47 Cincinnati 2.4% 48 Albuquerque 2.3% 49 Richmond 1.3% 50 Long Island 1.3% 51 Norfolk 0.8% 52 Detroit 0.0% 19 United States 4.7% CPI: 1987 to % - 9 -

10 Volatility Index Rank 1 New York 131% 2 Miami 82% 3 Los Angeles 64% 4 Las Vegas 61% 5 Anaheim 52% 6 Omaha 47% 7 Austin 46% 8 San Jose 39% 9 San Diego 35% 10 Washington DC 33% Rank 43 Salt Lake City -20% 44 Portland -21% 45 Kansas City -24% 46 Indianapolis -28% 47 St. Louis -30% 48 Richmond -30% 49 Orlando -34% 50 Albuquerque -44% 51 Buffalo -46% 52 Cincinnati -50% 28 United States 0%

11 Forecast Change in Value per Room Risk vs. Return: Low Volatility High Growth vs. High Volatility Low Growth $160,000 $140,000 New Orleans $120,000 $100,000 $80,000 $60,000 $40,000 Orlando Seattle Tucson United States Minneapolis Philadelphia Detroit Jacksonville Charlotte Houston Anaheim $20,000 $0-40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Volatility Index

12 HVI Value: United States (Volatility Index 0%) Compared to CPI, S&P 500, & Dow Jones $250,000 $200,000 $150,000 $100,000 United States CPI S&P 500 Dow Jones $50,000 $0-12 -

13 HVI Value: New York (Volatility Index 131%) Compared to CPI, S&P 500, & Dow Jones $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 New York CPI S&P 500 Dow Jones $100,000 $50,000 $0-13 -

14 HVI Value: Miami (Volatility Index 82%) Compared to CPI, S&P 500, & Dow Jones $250,000 $200,000 $150,000 $100,000 Miami CPI S&P 500 Dow Jones $50,000 $0-14 -

15 HVI Value: Los Angeles (Volatility Index 64%) Compared to CPI, S&P 500, & Dow Jones $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 Los Angeles CPI S&P 500 Dow Jones $100,000 $50,000 $0-15 -

16 Markets That Exceeded the Dow: 1987 to 2006 (All in the top 7 most volatile markets) Dow Jones % Change % Miami Austin 918% 744% Omaha 740% New York City 658% Las Vegas 554%

17 Major United States Sales Returning in 2010 Number of Number of Average Price Hotels Rooms Per Room ,865 $136, ,901 $139, ,443 $117, ,668 $153, ,626 $111, ,489 $136, ,324 $140, ,354 $158, ,523 $203, ,872 $191, ,071 $177, ,348 $128,000 YTD April ,122 $269,000 YTD April ,249 $178,

18 Median Overall Capitalization Rates, 2000 to % 10% 8% 6% 4% 2% 0% All Transactions Major Transactions

19 Where Do We See Cap Rates Today? Overall Capitalization Rate Based On: T-12 Year One Terminal Equity Yield Cap Rate Discount Rate Luxury 4% - 6% 5% - 7% 13% - 16% 7% - 9% 10% % Upper Upscale 5% - 7% 6% - 8% 15% - 18% 8% - 10% 11% % Upscale/Mid-Scale 6% - 8% 7% - 9% 17% - 20% 9% - 11% 12% %

20 Cap Rate by Location Cap Rate by Tier Median Overall Capitalization Rates by Tier and Location, 2000 to 2009 Luxury 5.6% First Class 7.7% Mid-Scale Budget 9.6% 10.1% Resort 6.1% Urban 7.4% Suburban Airport 9.1% 9.3% Highway 10.5% 0% 2% 4% 6% 8% 10% 12%

21 Median Overall Capitalization Rates Resort Locations by Tier, 2000 to 2009 Resort Overall 6.1% Luxury Resort 5.6% First-Class Resort 6.4% Mid-Scale Resort 8.0% Budget Resort 10.3% 0% 2% 4% 6% 8% 10% 12%

22 Worldwide Annual Percent Change in Value Per Room: 2001 to % 50% 40% 30% 20% 10% 0% -10% India United States Asia Europe -20% -30% -40%

23 Worldwide Annual Percent Change in Value Per Room: 2000 to United States - -25% 0% -2% 28% 26% 22% -5% -15% -31% 0% Europe - -2% -2% -10% 2% 4% 9% 3% -11% -13% 2% Asia - -4% 5% -4% 6% 7% 15% 14% -14% -8% 2% India - -31% 11% 35% 49% 35% 28% 12% -33% -18% 8%

24 Buy? Any market where you can find an acquisition opportunity Focus on: New York Miami San Francisco Las Vegas Tampa New Orleans Detroit Phoenix

25 Sell? Don t sell now Ride the wave of recovery

26 Build? Build when values are 80% of replacement cost

27 Rushmore s Observations We are at the bottom of the cycle. Supply growth will be limited over the next 4 years. Now is the time to buy and 2012 will be the time to sell therefore transaction volume will be low this year but will pick up significantly in 2011 and Look to buy in high-volatility markets where values will increase significantly over the next 5 years. Expect a lot of buyer competition from all the cash on the sidelines. Today is the best hotel buying opportunity since

28 Steve Rushmore, MAI, FRICS, CHA Steve Rushmore is the president and founder of HVS, a global hospitality consulting organization with 30 offices around the world. HVS provides consulting and valuation services for thousands of clients in all 50 states and more than 60 foreign countries. The company specializes in complex issues involving hotel feasibility, valuations, and financing. Steve directs the global operation of HVS and is responsible for future office expansion and new product development. He was one of the creators of the Microtel concept and actually owns and operates hotels. As a leading authority and prolific author on the topic of hotel feasibility studies and appraisals, Steve Rushmore has written all five textbooks and two seminars for the Appraisal Institute covering this subject. He has also authored three reference books on hotel investing and has published more than 300 articles. He writes a column for Lodging Hospitality magazine and is widely quoted by major business and professional publications. Steve lectures extensively on hotel trends and has taught hundreds of classes and seminars to more than 20,000 industry professionals. He is also a frequent lecturer at major hotel schools around the world, including Lausanne, Cornell, Houston, and IMHI. About HVS HVS is the world s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 2,000 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. We are client driven, entrepreneurial, and dedicated to providing the best advice and services in a timely and cost-efficient manner. Through a worldwide network of offices staffed by 400 seasoned industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit

Hotel Valuation and Transaction Trends For the U.S. Lodging Industry

Hotel Valuation and Transaction Trends For the U.S. Lodging Industry Steve Rushmore, MAI, FRICS, CHA President and Founder HVS 372 Willis Avenue Mineola, NY 11501 516-248-8828 ext. 204 srushmore@hvs.com