Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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But tourists aren't fl ooding this High Plains state: it's workers drawn by North Dakota's oil boom who are fi nding very limited options for housing. Spillover demand has also picked up next door in eastern Mon- tana, says Steven A. Hall, CCIM, MAI, FRICS, president of Hall- Widdoss & Co., in Missoula. But in other parts of the state more reliant on tourism and business conferences, he sees little move- ment in occupancy rates and ADRs. And development? "We've seen very limited new construction since fall 2008," he says. And so goes the story for the hotel property market in second- ary and smaller markets. Outside the major markets, investment activity and development is limited and highly dependent on local factors, a survey of CCIMs reveals. In every locale, the culprit most cited is the lack of available fi nancing. Established tourist areas and midsize cities with strong job growth have been attracting some investment attention, usually from all-cash or Small Business Administration-fi nanced investors. But even in markets where demand is strong and boosting ADRs and RevPAR, there is little to no money for development and very limited fi nancing for hotel investment transactions. Tourism Locales "In recent months, I've seen sharply increased transactional vol- ume, but it has been highly preferential," says Daren Hebold, CCIM, broker/owner of Lux Realty Group in Portland, Maine. "In oceanside resort destination markets, small independent bou- tique hotels and inns ranging from 20 to 80 rooms that possess extraordinarily high ADRs are in favor at this time and garner cap rates in the 5 percent to 9 percent range." Hebold adds that Northeast resort markets such as Ogunquit, Maine; Nantucket, Mass.; and Newport, R.I., "appeal to upscale and luxury travelers who have more discretionary income to spend and are driving hoteliers to create increasingly higher quality product. Upscale independent inns and resorts that have diligently rein- vested in their properties will report record ADRs in 2012." T e same could be said on the other side of the U.S. in Califor- nia's Napa Valley, north of San Francisco, says Rosemarie Cor- rigan, CCIM, of Artisan Sothebys International Realty, in Santa Rosa, Calif. "T e ADRs have always been high and now the occu- pancy trends are increasing, having been fl at for several years," she explains. Corrigan adds that both distressed assets and trophy proper- ties are selling and she sold one of each in May: "T e Christopher CCIM.com A MAJOR DIFFERENCE In the major gateway cities, hotel investment is a totally different — and much more positive — story. U.S. hotel transaction volume hit $5.1 billion at midyear for assets $5 mil- lion and above, according to Jones Lang LaSalle. The average price per key was $194,000, 5 percent above 2011's annual average. Single-asset transactions accounted for 70 percent of the volume. Private equity inves- tors and real estate investment trusts made most of the purchases. In a market such as San Francisco, "It's just too expensive and complicated to build," says Anwar Elgonemy, CCIM, director of investments for Equinox Hospitality. "Investors can get a much higher return on investment if they buy existing, cash-fl owing properties." And, he adds: "The absence of new lodging supply is signifi cantly benefi ting the San Francisco hotel market in terms of occupancy and average daily rate." Analysts predict more of the same for hotel investment in the major markets. According to JLL's June hotel investor survey, 46 percent of the respondents said they would be buying in the next six months, and the number of respondents selling was at a high mark as well. Strong buy markets included Hawaii, Chicago, Boston, and Miami, which have all seen double-digit room rate growth in the past year. Sell markets included Orlando and Tampa, Fla., and Dallas. Mark Bratton, CCIM, vice president of investment properties with Colliers International in Honolulu, says "All local market factors are positive: occupancy, room rates, ADRs, RevPAR, tourism counts — Waikiki and Maui are par- ticularly strong," with both institutional and Chinese investors showing interest. "In a word, the forecast is 'upbeat,' Bratton adds. "There are four major waterfront hotels in Hawaii that will soon hit the market. Investors are eager to invest while demand is strong and before interest rates start to rise." September | October | 2012 23 Ashley Jouhar/Glow Images