Repent: The End Is Near Well, not really, but Landauer Real Estate Counselors are waving the yellow flag for participants in the race to acquire full-service lodging properties. Summing up the first half o f 1996, Landauer noted that debt and equity players, such as money-center banks, insurance com- panies, and pension funds, which had vowed never again to put money in a hotel, are once again tiptoeing into the market. Another point of concern: in an eerie echo of the 1980s, some bid prices are being based at least in part on projections by the broker or invest- ment banker, projections that rarely take into account economic cycles or supply changes. A final point of caution, investors are now willing to consider deals that will involve considerable capital outlays for updating the assets.

With those caveats, Landauer notes that the near-term outlook for full-service properties is bright. Investors it surveyed found that al- most all respondents agreed that the full-service sector can enjoy at least two more years of I~VPAR growth exceeding inflation. More- over, barriers to entry remain high in this sector and the cost of buy- ing remains lower than the cost of building. Landauer's survey com- prises 46 major hotel investors and lenders.

As the good times continue, the operating stringencies imple- mented in ~990 are gradually relaxing. Landauer notes early hints of amenity creep, which was common in the late 1980s as hotels sought to differentiate themselves.

A different wor ld . The picture of the limited-service market is entirely different fiom that o f full-service hotels. Overbuilding is a concern for investors in the limited-service segment, partly because barriers to entry remain low.Virtually every major chain is rolling out new limited-service products, and prices for existing properties rarely exceed replacement cost.

To be fair, Landauer notes that supply growth is far below that of the bubbly '80s, but new limited-service development is being sub- stantially driven by the ffanchisors, which are offering financing pro- grams through public market offerings.As has been the case through- out the '90s, most o f the new construction continues to be small properties (60 to 150 rooms) in tertiary markets, and revenue growth has kept pace with development. Still, Landauer vice president Angelo Stambules concludes: "Franchisors are extolling the 'unique- ness' of their products and the virtues of segmentation as a form of insulation from outside competition. Sound familiar?"--G. W..

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February 1997 ,,, 13