LIIC's 2014 survey predicts a long, slow cycle for lodging investment

The Lodging Industry Investment Council (LIIC), one of the industry's largest think tanks, released "The 2014 LIIC Top Ten: The Annual Survey of Lodging Investment Trends and Challenges." The survey was conducted by 70 active senior executives in the lodging industry that represent major firms involved in hotel real estate and finance.

Members of LIIC represent direct acquisition and disposition control of over $40 billion in lodging and real estate, and 57 percent of LIIC members have purchased a hotel in the last 12 months. A further 13 percent have made offers but not closing.

Mike Cahill, co-chairman of LIIC and CEO and founder of Hospitality Real estate Counselors, produced this year's survey. The top ten challenges for hotel investment in 2014 are as follows:

1. A return to a longer, slower cycle. Fifty percent of LIIC members believe that 2005 is the year that most closely resembles 2014, a positive statement that potentially indicates an extended cycle. Fifty-two percent of responders believe hotel real estate values will not peak until 2017 or later.
2. Hotel property values are predicted to continue to increase over the next 12 months, according to an overwhelming 98 percent of respondents, with 81 percent of responders predicting values to increase up to 10 percent.
3. Equity rates are forecasted to lower, according to 46 percent of respondents, while 41 percent forecast they will remain the same.
4. Nationwide transactions are forecasted by 83 percent of respondents to continue to increase through 2015. Thirty-two percent are optimistic, anticipating volume growth over 10 percent.
5. Eighty-three percent of those surveyed believe hotel debt lending will be more readily available in the next 12 months, and 68 percent of responders expect loan/value ratios to increase allowing for greater investment leverage.
6. Fifty-two percent of lodging real estate investors surveyed consider the Marriott Rewards guest frequency program the best in the industry. The closest program in second was Hilton Honors at 13 percent approval.
7. Increased hotel development is expected over the next 12 months, with over 70 percent of the LIIC council believe now is the time to develop within select markets with select products. Only 18 percent think it is better to buy existing hotels, down from 23 percent in 2013.
8. Only 31 percent of participants find the quality of hotels for purchase on the market desirable, down from 41 percent in 2013.
9. True Group Demand, defined as blocks of 10 rooms or greater and using meeting or function space (either on-property or nearby) is growing, according to 77 percent, and is expected to perform well over the next two years.
10. Ninety percent of LIIC members believe the Affordable Care act will continue to increase overall hotel labor costs in 2014. None of the respondents were of the opinion that Obamacare would decrease their labor expenses and only 10 percent answered that it would have no impact.