Hotel Investment Research Articles

Determinants affecting comprehensive property-level hotel performance: The moderating role of hotel type

It is crucial for hotel managers to understand the main drivers of each property's financial performance. This study examines the key antecedents of both service-profit chain frameworks (customer and employee satisfaction) and strategic perspectives (size, customer mix) that influence a comprehensive hotel performance. The findings of this study show that customer satisfaction is a prominent driver of performance and that hotel size and customer mix also have significant effects on performance. This study also examines the moderating effects of hotel type on the following three determinants: customer satisfaction, hotel size, and customer mix and performance. The findings will offer useful insights to hotel chain firms and hotel investors who manage or own a portfolio of different hotel types.

Awarding Sustainable Asia-Pacific Hotel Practices: Rewarding Innovative Practices or Open Rhetoric?

Award programmes facilitate recognition and reward of innovative practices creating industry benchmarks for world-class standards. Growing recognition and adoption of sustainability practices and corporate social responsibility charters amongst hotels internationally is nudging the sustainability paradigm. However, comprehensive empirical data, detailing and describing these practices are under examination. This paper examines sustainable hotel practices of Asia-Pacific hotels utilizing an exploratory inductive content analysis of self-reported award submissions. The submissions of 64 hotels to the Hotel Investment Conference Asia Pacific Sustainable (HICAP) Hotel Award scheme over 2009 and 2010 were analyzed. Three primary categories of sustainability practices were identified: operations-related, community engagement and design-related initiatives. A model of sustainable hotel practices is then proposed, which will assist hotel managers in benchmarking their organization to achieve higher levels of sustainability.

Airport relocation and expansion and the estimation of derived tourist demand: The case of Eilat, Israel

This paper looks at capacity expansion relating to an airport and the derived tourist demand that this facilitates. The context is the airport relocation planned for the tourist destination of Eilat, Israel. The paper addresses three issues. First, using a multi-regional input output model for Israel, we estimate the magnitude of the static inter-sectoral impacts associated with airport construction and operation and their impact on the regional and national economy. Second, we focus on the lag effects in this process as increased tourism demand does not elicit an immediate response on the supply side in terms of new hotel investment. Third, on the demand side, we estimate additional tourism expenditure in non-hotel activities over the period that the market adjusts and beyond.

Are we prepared for the economic risk resulting from telecom hotel disruptions?

Large and small businesses in Seattle, Washington, as in most urban centers across the United States, increasingly rely on telecom hotels and related telecommunications centers to conduct business operations. What would be the economic impact to these businesses if a natural or man-made disaster were to make this infrastructure unavailable for a significant period of time? How long would it take for the owners of small businesses, which provide the foundation for economic recovery, to give up and move away? Are metropolitan regions prepared for this risk?This paper draws on publicly available reports of telecom hotel investments to examine the economic risks that such telecommunications hubs pose at the regional scale. New York City and Seattle are two urban areas that depend on key investments in telecom hotels. In the Pacific Northwest, these assets are located downtown, primarily in the center of the urban real estate market of Seattle. Although the terrorist attacks of September 11, 2001 were directed at the World Trade Center in Lower Manhattan, collateral damage to a major telecommunications hub brought outages during and after the attacks that highlighted the serious risk posed to small- and mid-sized businesses from disruptions in telecommunications service. The Seattle case study illustrates the potential to learn from the experience in Lower Manhattan and apply this knowledge across the United States. Regional economic analysis of the benefits of and the means to protect small- and mid-sized businesses can provide the basis for strategic investments that minimize economic loss and reduce the recovery time.

Comparative analyses of hotel REITs: examining risk‐return and performance characteristics

PurposeThis study aims to compare the risk‐return characteristics and performance of real estate investment trust (REIT) hotel companies (hotel REITs hereafter) with those of C‐corporation hotel companies (hotel C‐corps hereafter).Design/methodology/approachThe risk‐return characteristics and performance of hotel REITs and C‐corps were examined by estimating single‐factor and Fama‐French three‐factor asset pricing models for each portfolio. Differences between the hotel REIT and C‐corp estimations were tested using Wald test statistics.FindingsLittle evidence was found that hotel REITs have significantly different risk‐return characteristics and performance than hotel C‐corps, which suggests that hotel REITs and C‐corps are not significantly different in terms of market risk‐return characteristics and performance. The market portfolio had a significantly positive effect on the returns of both hotel REITs and C‐corps. The size and book‐to‐market factors of common stock also had a significant explanatory power for the returns of hotel REITs and C‐corps. Both hotel REITs and C‐corps performed similarly to the market portfolio, on a risk‐adjusted basis, during the 2000s.Research limitations/implicationsDespite the fact that the three‐factor asset pricing model explains a significantly greater proportion of the variation in the hotel firms' returns than the single‐factor asset pricing model, approximately 30 percent of the total variation still remains unexplained.Practical implicationsThe risk‐return characteristics and performance of hotel REITs and C‐corps revealed by this study will render hotel investors' decisions between the two organizational structures less complicated. In addition, the findings can be used by portfolio managers to construct a well‐diversified portfolio.Originality/valueA multifactor asset pricing model was used for the first time in this article to examine the risk‐return characteristics and performance of hotel companies. In addition, the importance of understanding differences between REIT and C‐corp structures in the lodging industry is emphasized.

Does Tourism Eco-Certification Pay? Costa Rica's Blue Flag Program

Tourism associated with beaches, protected areas, and other natural resources often has serious environmental impacts. The problem is especially acute in developing countries, where nature-based tourism is increasingly important and environmental regulation is typically weak. Eco-certification programs — voluntary initiatives certifying that tourism operators meet defined environmental standards — promise to help address this problem by creating a private-sector system of inducements, monitoring, and enforcement. But to do that, they must provide incentives for tourism operators to participate, such as price premiums and more customers. Rigorous evidence on such benefits is virtually nonexistent. To help fill this gap, we use detailed panel data to analyze the effects of the Blue Flag Program, a leading international eco-certification program, in Costa Rica, where nature-based tourism has caused significant environmental damage. We use new hotel investment to proxy for private benefits, and fixed effects and propensity score matching to control for self-selection bias. We find that past Blue Flag certification has a statistically and economically significant effect on new hotel investment, particularly in luxury hotels. Our results suggest that certification has spurred the construction of 12 to 19 additional hotels per year in our regression samples. These findings provide some of the first evidence that eco-certification can generate private benefits for tourism operators in developing countries and therefore has the potential to improve their environmental performance.

Can Tourism Save the Vietnamese Dong?

In 2011, Vietnam has devalued its currency three times. For years, the Vietnamese Dong (VND) has been weakening against the Euro and the U.S. dollar as well as currencies of neighboring countries. Confidence in the VND is low – even within Vietnam; locals prefer to invest in real estate, gold or the U.S. dollar. Despite several devaluations, Vietnam remains vulnerable to inflation and is facing a widening trade deficit. Inflation may reach 14% in 2011. Imports grew 30% in 2010 and the trade deficit of 2011 may widen to US$ 5 billion. Value-added production is low due to the high import content of Vietnam's exports which has prompted policymakers to shift focus from textile and footwear output to tourism. In the coming five years the tourism and travel industry could become the country's major foreign exchange earner. There has been recent significant growth in tourist arrivals, although their share of total GDP remains modest. The authors analyzed the strength and weaknesses as well as opportunity and threats of Vietnam’s tourism industry. The research was based on in-depth interviews and may be summarized as Grounded Theory (GT) approach. The findings suggest that community based tourism and cooperation within the Greater Mekong Subregion (GMS) offer great potential. Inbound-wise the Russian segment looks very promising. Major investment in the development of human resources is essential to complement infrastructure investments in hotels, resorts, casinos etc. Competing against neighboring countries such as Thailand and China will require a service attitude that Vietnam has been lacking so far. Tourism has the potential to bring the trade balance back into equilibrium either by making foreign independent travelers stay on average 3 days longer or by increasing the number of incoming tourists by 50%. In both scenarios the tourism industry is still underutilized compared to Malaysia or Thailand.

The role of portfolio diversification in the hotel industry

PurposeThe purpose of this paper is to study whether geographic and sector diversification allow for a significant reduction in the risk exposure of a portfolio of hotel investments in one of the major tourist markets, the Italian market.Design/methodology/approachThis paper evaluates the benefits related to a Markowitz diversification approach for the construction of a specialised portfolio in the hotel real estate market. The portfolio analysis considers the degree of efficiency of each portfolio, the type of diversification adopted by a more efficient portfolio, the persistence of results over time and the impact of diversification constraints.FindingsThe results demonstrate that, while standard geographic and sector diversification allow for good results, the more efficient portfolios are more concentrated. The trade‐off is worse if some concentration constraints are established, but the portfolios identified are characterised by higher performance persistence.Research limitations/implicationsThe analysis only considers high‐quality hotels in the Italian market. Unfortunately, some information on costs is not as detailed as would be desired. The availability of a more complete database could increase the significance of the results obtained.Practical implicationsThe results are relevant for constructing all hotels' portfolios, like those managed by a real estate fund manager, in order to define the type and degree of diversification that allow for minimal risk exposure.Originality/valueThis paper is the first to apply the Markowitz theory to the Italian hotel industry in order to identify the best diversification criteria.

Spatial effects of the property sector investment on Greek economic growth

PurposeThe aim of this paper is to identify the importance of property sector investment in regional economic growth in Greece.Design/methodology/approachThe paper uses regional accounts data, including investment and employment for all Greek industries. The standard Cobb‐Douglas specification is used. The authors apply random effects and GMM estimators for dynamic panel data and employ two model specifications (aggregate and disaggregate).FindingsThe results indicate a positive relationship between investment in real estate services and hotels and restaurants and regional growth. Also, investment in the energy sector, which is closely linked to construction and consequently to housing activity, appears to have a positive and significant growth effect.Practical implicationsThe authors believe that these results are useful, make a contribution to the existing knowledge, and provide firm justification that the property sector has a considerable effect on regional economic growth in Greece.Originality/valueOne of the distinctive features of the paper is that it discusses critically the extent to which the Greek property sector, as part of a broader nexus of domestic and global dynamics, affects regional economic growth – either directly or indirectly. To the best of the authors' knowledge, none of the existing studies in this area provides a systematic treatment of the property sector as a contributory factor in explaining the growth performance of Greek regions. The authors believe that this is an important empirical issue, especially given the spatial disparities that characterise Greek economic growth.

Critical External Factors behind Hotels' Investments in Innovation and Technology in Emerging Urban Destinations

The decision-making processes of tourism firms are being conditioned by the profound transformations taking place in both client demand and destination dynamics. This new scenario requires an increased level of information, innovation and technology if tourism firms are to remain competitive. In particular, information and communication technologies (ICTs) can provide competitive advantages by improving a firm's knowledge of its own internal structures and of the milieu in which it is operating. This study therefore identifies and analyses the critical external factors that influence innovation and ICT investment in hotel businesses by evaluating the impact of hotel investment strategies. The methodological approach taken is an adaptation of the PESTEL model to the particular case of hotel management. This model identifies the factors (political, economic, social, environmental, technological and legal) that affect any given organization. The authors also apply Porter's ‘five forces model’, which assesses the competitive environment in which firms act, taking into account the power of buyers, intermediaries, current and potential competitors and substitutive products. The study area is the region of Madrid (MAC), since this has only lately emerged as a major tourist destination and its hotel market is recent and of medium to high quality.

Interpreting the mind of multinational hotel investors: Future trends and implications in China

This study provides an updated outlook on the future of the investments proposed by multinational hotel corporations in China. Data were collected from secondary sources using keyword research to identify proposed new hotel developments and future trends in China. A grounded theory approach was used to analyze the data. Findings revealed that the decisions of multinational hotel groups with respect to business formats, the direction trends of investments, and the attractiveness of Chinese market are affected by the happening of mega-events, Chinese government policies, the presence of local entrepreneurs, and market potential.

Measuring the Investment Potential of Lodging Markets: an Indexing Approach

It is generally accepted that hotel development, investment and acquisition follows three basic steps (Rushmore, 2001): 1. Identifying market areas that show long term potential for hotel investment 2. Choosing a lodging product that takes advantage of the dynamics of the local supply and demand characteristics 3. Search and selection of a suitable site Whereas, there is value in the individual data and information sources to identify potential markets for lodging investment decisions, a systematic and formal analysis of aggregate market potential can be a useful tool for hotel developers and investors. The purpose of this study is to develop such an objective measure in the form of a Lodging Market Potential Index. As a first step in hotel development, investment and acquisitions decisions, this index will identify market areas that show long term potential for hotel investment. Based on a scale of 1 to 100, the Lodging Market Potential Index should enable hotel developers and investors to conduct a relative comparison of the 25 largest lodging markets (as tracked by Smith Travel Research) along 10 Dimensions. Dimensions are measured using 30 different indicators and are weighted to determine their contribution to the overall market potential index. To measure the performance of each dimension, objective, credible, reliable and quantifiable indicators were identified.

Hotel Valuation in China

This study applies the seven hotel-valuation techniques proposed by Rushmore to estimate the value of a state-owned hotel in China. The dearth of research on hotel real estate in China may be attributed to the fact that the historic data of hotel sales transactions is not available or difficult to obtain. Nevertheless, many international hotel investors are interested in China’s hotels because of its booming tourism business. This study analyzes the extent to which the seven generally accepted hotel valuation techniques might be appropriate for China, since those approaches rely on certain types of data and financial ratios that may not be readily available. Using a single hotel as a case study, the study found that each valuation technique has its own strengths and weaknesses. On balance, the income capitalization approach should work most reliably in China, while a sales comparison approach may be the least reliable technique.

Critical Success Factors and Customer Expectation in Budget Hotel Segment — A Case Study of China

This study investigates the nature of critical success factors (CSFs) in China's budget hotel operations and development from the perspectives of various stakeholders, including customers, industry professionals, government authorities, and hotel investors. Understanding the differences in CSFs becomes extremely important to the success of the budget hotel segment in China. Results indicated that while all five dimensions of CSFs (i.e., physical product, service quality, price, promotion, and location) were deemed important by the industry professional, government authority, and hotel investor, the sequence of importance differed substantially among these groups. By contrast, customers were primarily concerned with service quality issues, indicating service quality was still the core customer expectation in China's budget hotel market.

Layer or top-up? Why European hotel investors should include revenue management in their investment decisions

Revenue management is an increasingly important tool for hotels to achieve the highest RevPAR (revenue per available room) possible. As RevPAR is the barometer for hotel performance, it follows that an understanding of revenue management strategies and techniques would help investors to have a more thorough understanding of the dynamics behind a hotel's RevPAR, and therefore would enable them to make wiser and more knowledgeable investment decisions in local market conditions. This paper explores the relationship among the different revenue management strategies applied to different types of hotels (limited, focused and full service) and the resulting variations in RevPAR performance specific to the local competitive market and its conditions.

Robert L. Johnson: From Media Mogul to Developing the Largest African-American Owned Hotel Investment Company

Robert L. Johnson is the co-founder of RLJ Development, the largest African American hotel investment company. At the start of 2008, the company owned 144 hotels with a total of 4,061 guestrooms. Prior to forming RLJ development, Mr. Johnson enjoyed business success as the founder of the iconic media brand, Black Entertainment Television. This article presents the life and entrepreneurial activities of Robert L. Johnson, from his early entrepreneurial activities to the founding of RLJ Development.

Valuing Growth Strategy Management by Hotel Chains Based on the Real Options Approach

This paper proposes a method for valuing growth strategies by hotel chains, especially when the investment project involves a high degree of uncertainty. To do this, first the opportunity risks that are inherent in this type of investment project have to be defined and the shadow options ascertained. The second step is to describe the strategies available to hotel chains and the combinations of real options they have implemented. The third step is to propose an investment strategy valuation method that will enable the selection of a strategy that maximizes the value of the company. The most important contribution of this paper is that it highlights the problem that failure to recognize the real options inherent in hotel investment strategies where uncertainty is involved will lead to undervaluation, while the recognition of options that are not key factors (over-recognition) can be misleading. This emphasizes the importance of recognizing only options that are key to the investment project.

European hotel industry performance 2007

As part of our series of quarterly papers, which aim to observe the latest trends in key hotel industry sectors, this edition presents a snapshot of current trends in the market concerning values, acquisitions and disposals, as well as funding and development. The snapshot is drawn from two of HVS's core annual articles. HVS's European Hotel Valuation Index (written by Elana Bader) is an annual review of European hotel value trends. The survey shows that hotel values achieved a fourth consecutive year of growth, increasing by 2.6 per cent in 2007, compared with an increase of 9.0 per cent in 2006. Values per room largely exceed the peak values of 2000. HVS's European Hotel Transaction Review (written by Cristina Balekjian and Elke Geieregger) analyses the single asset and portfolio hotel transactions that shaped 2007. The review highlights the increase in the volume of portfolio transactions and analyses the impact of the economic slowdown on hotel investment. After going into ‘orbit’ and achieving record levels of investment in 2006, 2007 maintained high levels of investment, demonstrating a slowdown towards the end of the year as we ‘weather the storm’ of the credit crunch.

Das vernachlässigte versprechen — Die markenpolitik internationaler Hotelketten im Spiegel aktueller Erkenntnisse des Dienstleistungsmarketing

International hotel chains are currently in the process of clearing out their portfolios in response to changed conditions on hotel investment markets, and this is releasing extensive financial resources for the development of new hotel brands. Hotel chains in most cases think of the services they offer as being generic in this context. In terms of their current marketing activities, they are shifting the focus of their brand management goals to pinpoint the realization of economies of scale by using shared resources. The state of the art in scientific marketing research, in contrast, indicates that the promises that a hotel brand makes to guests for every link along the hotel’s value chain are of paramount importance. This paper explores these divergent views of branding by critically reviewing the current trends in brand management of international hotel chains in view of the latest theoretical findings of service marketing. On the basis of a critical dialog between marketing research and practice, the paper arrives at a promising and, at the same time, practical brand policy that both serves the peculiarities of hotel services and can be utilized as a central strategic, operative instrument of customer-oriented corporate management.

Private equity hotel investments

The significance of private equity as a form of financing and investing has led to growing interest in the real estate economy over the past few years. Anglo‐American investors in particular are currently engaged in large‐scale real estate transactions and have now become the most important group of investors in the European hotel real estate market. However, for private equity funds, the high risk of investing in complex tourism and specialized real estate such as hotels is always coupled with an expectation of returns well above the market average. Yet actually achieving above market returns is not always accomplished. This paper therefore deals with the question of why some real estate private equity investors succeed in getting returns above the total market average even in the overall bear Western European market environment while others fail to do so. It shows that one formula for success includes deliberately exploiting market imperfections und overcoming inefficient information policies.