No small number of Fairfield County hotels have been looking to get an “in” with movie directors the past few years, hoping to serve as a shooting locale for a future classic.
Now, researchers have defined what it takes for lodgings to be labeled a “classic.”
Cornell University researchers recently calculated the “inflection point” at which the property”™s value begins to appreciate. The tool could help buyers and sellers of hotels better predict at what point a hotel is no longer a piece of real estate, but an inextricable part of a community.
That occurs when a hotel turns 28 years old on average, according to Cornell Prof. Jack Corgel, who studied appreciation and depreciation data on more than 3,800 hotels affiliated with chains. His report suggests the best-positioned hotels that are still operating at the inflection point may well be on their way to become classic properties.
The rest may be candidates for rebranding ”“ the decision for any owner is whether to “swim upstream” by making investments to spruce up the hotel”™s image, or whether it is time to find a buyer.
As is the case with all commercial real estate, the value of a hotel begins to depreciate as soon as the property is open. Hotel value declines at a relatively brisk rate for the first 10 years of operation, until renovations slow that depreciation.
After state lawmakers passed tax credits in 2006 in a bid to lure filmmakers to shoot onsite in Connecticut, several local hotels have sought to reinvigorate their business by doing the same; from the Delamar Greenwich Harbor to the Heritage Inn in New Milford.
“My analysis suggests that renovation money is well-spent on middle-aged properties that are positioned in strong markets with good locations,” Corgel said. “Although outside events do remove some hotels, many properties survive to increase in value during their middle years.”
For now, hotels do not appear to be an attractive commodity, classic or no. Sales of U.S. hotel properties dropped more than 80 percent in the first half of 2008 compared to a year earlier, according to a new report from Jones Lang LaSalle, a commercial real estate broker in ChicagoStamford office. Sales were about even with their pace in 2004; before sales more than tripled in a three-year frenzy to a record $45 billion. with a
Due to reduced credit availability, deal sizes are far smaller as well, with a much higher percentage of deals below $100 million.
In the past year, Foxwoods, Mohegan Sun and MGM Grand have spent billions to complete three new hotels in eastern Connecticut.
They have done so even as hotel occupancy rates continued to decline in August. According to Tennessee-based Smiths Travel Research, occupancy rates were 69 percent in the first half of August, down from 73 percent a year ago.
Room rates were also down 1.7 percent on average from a year earlier.
Despite the declines, hotels located in urban markets like Fairfield County performed comparatively better, according to Smiths Travel Research, as did small “boutique” style inns off the beaten track that tend to attract wealthy patrons.
Perhaps a few of them will even become classics.
