erich baum
Hotel Cap Rates: Adjusting to a New Reality
Erich Baum | May 22, 2024
By Erich Baum A capitalization rate (“cap rate”) is a shorthand expression of a given investment’s return and represents the weighted average return to the debt and equity positions. As detailed in this article, hotel cap rates are higher than they’ve been in recent years and are unlikely to decline anytime soon. Component Parts A cap rate can be constructed using the “band-of-investment” technique, requiring assumptions as to both debt financing terms and the equity investor’s return requirement, measured by the dividend (cash on cash) rate. The following table identifies this technique using typical pre-pandemic inputs fo...
Boston Hotel Market Update: Ten Things to Know
Erich Baum | January 8, 2024
By Erich Baum, Brian Bisema, Raymond Parejo, Nico Cooper Boston is back. The three key demand channels have returned to an approximation of their pre-pandemic levels (conventions and business travel up, leisure down), and the city’s RevPAR has improved to third in the nation, supplanting Miami and various West Coast rivals. Here are ten things to know about the city. 1. Boston’s revenue per available room (RevPAR) is on pace to finish 2023 at approximately 110% of its 2019 level. Occupancy is lagging slightly, at 97% of the pre-pandemic peak, but average rate is picking up the slack. 2. Conventions came roaring back in 2023. The ...
Portsmouth, NH Shakes Off Pandemic-Era Rust & Shows Promise for Future
Erich Baum | April 20, 2023
By Erich Baum As recently as the 1980s, Portsmouth, New Hampshire, was a rowdy military town with empty storefronts. Construction of the Sheraton Harborside (completed in 1988) required subsidies to pencil out, and another twenty years passed before the Hilton Garden Inn followed, without help from the public. In the years since, the downtown hotel market has continued to mature, adding affiliates of Residence Inn by Marriott in 2010 and Hampton Inn in 2014, followed by an AC by Marriott, which had the bad luck to open in January 2020. Three years and one pandemic later, the AC by Marriott has been absorbed, and the market thri...
Almost Home: The Boston Hotel Market Approaches a Recovery
Erich Baum | December 13, 2022
By Erich Baum, Brian F. Bisema, Raymond Parejo According to STR, Boston’s revenue per available room (RevPAR) finished 2021 at roughly half the pre-pandemic 2019 level, a discouraging performance. But the city took a leap forward in 2022 and is on pace to finish the year with a RevPAR level just a shade below the pre-pandemic performance. After adjusting for inflation, these results are less significant, of course, but the turnaround still represents a huge achievement, particularly considering that the recovery is still in progress for the international travel, corporate transient, and convention demand channels. As illustrated in the ...
Convention Center Headquarters Hotel Openings – Nine Cases in Point
Erich Baum | February 20, 2019
Erich Baum Openings of hotels with 700+ rooms are rare events in even the most first-tier urban locations. Such openings are usually associated with the operations of a major convention center. These properties are typically referred to as headquarters hotels due to their unique capacity to function as the primary lodging option for large citywide conventions. This article looks back at nine headquarters hotel openings over the past 16 years as a means of illuminating the rate at which such hotels are absorbed and examining the impact such properties have had on their competitive sets. (The competitive sets were defined by HVS in the co...
Possessory Interests in Hotel Real Estate
Erich Baum | January 18, 2019
By Erich Baum What is a Possessory Interest? A possessory interest is created when a private-sector tenant is granted exclusive use of real property (land and/or building) that is owned by a tax-exempt entity, typically a municipality or a state or federal government agency. The right to occupy and use the land and/or building is usually conferred via a lease. Examples Please? Because of the federal and municipal government's extensive ownership interests in the nation's capital, many possessory interests have been created in Washington, D.C. Two examples involving hotels follow: The Trump International Hotel opened in September 2016...
Supply-Induced Hotel Demand in Portland, Maine: An HVS Case Study
Erich Baum | February 8, 2018
By Erich Baum Portland, Maine, is the northernmost outpost of the Atlantic Seaboard, host to a six-month winter and minor league hockey. A small, third-tier city, with steady but slow economic growth, Portland's downtown hotel inventory recently grew from five to ten properties over a six-year period. Why did developers and loan underwriters think there was enough demand potential to support approximately 1,000 new rooms, a 127% increase? Because it could, evidently. Credit goes to induced demand. Downtown Portland Lodging Market Trends The following table details key rooms-revenue metrics for Downtown Portland between 2013 and 2016. Do...
Resort With A Real Estate Ownership Component: A Turnaround Case Study
Erich Baum | November 7, 2016
By Erich Baum Whether the setting is sun-and-sand, snow-and-ski, or an indoor water park, today's destination resorts commonly feature real estate ownership programs. Structured as whole ownership, fractional ownership, or timeshare, these "residential" condominiums typically feature fully equipped kitchens and multiple bedrooms. This article provides a brief overview of this concept, using a turnaround case study to demonstrate methodology for evaluating ownership component economics. Why is the Real-Estate Ownership Component So Necessary? In the universe of real estate developments, high-end destination resorts are among the most cos...
