CREF issues Cornell Real Estate Market Indices for first quarter 2014
Cornell Market Indices: First Quarter 2014: Prices Have Not Caught up to Growth in RevPAR
by Crocker H. Liu, Ph.D., Adam D. Nowak, Ph.D., and Robert M. White, Jr., CRE, FRICS
Hotel prices are not yet reflecting the positive momentum in RevPAR. However, we expect prices for hotel properties to rise in the next quarter based on our repeat sales index. A comparison of current operating yields relative to borrowing cost suggest that hotel investors expect most of investment performance to come from capital gains when the hotel is sold rather than operating performance. We also expect a further compression in hotel cap rates going forward. However, we anticipate positive price momentum to occur in smaller hotels with moderate increases (if any) for larger hotels based on our forward looking barometers. This is report number 10 of the index series.
All three Cornell Indices will be issued quarterly, based on data compiled by CoStar and Real Capital Analytics. The large and small hotel indices are similar in construction to the consumer price index (CPI), while the repeat sale hotel index is analogous to the retail concept of same store sales, as it compares the sales and subsequent sales of the same hotel over time. These measures provide a more accurate representation of the current hotel real estate market conditions than does the current practice of reporting the average transaction price in each time period, because the average price measure does not account for hotel quality in a given transaction. The major goals for these hotel indices are to provide benchmarks to gauge current hotel price movements and to allow for the comparison of hotel performance relative to other property types.
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