COVER STORY, JUNE 2011

HOSPITALITY’S BRISK PACE
Projected rise of full-time positions to benefit sector.
Michael Yu and Rahul Bijlani

Yu

The modest economic recovery helped to raise occupancy levels in the hospitality sector last year and a transition to a more normal and sustainable expansion cycle will occur through year’s end 2011 as job creation and economic activity accelerates nationwide. Employers will add nearly twice as many positions this year as in 2010, spurring an increase in business travel and spending on vacations. The projected rise in the creation of full-time positions and less reliance on temporary workers will greatly benefit the hospitality sector across the United States and in Texas.

The Texas hotel market is quickly emerging from the recession and improving at a brisk pace. Occupancies increased 4.2 percent to 57.8 percent from the first quarter of 2010 to the first quarter of 2011. Occupancy numbers, it should be noted, are somewhat skewed due to high demand in Dallas, the location of the last Super Bowl in February. ADR also improved 4.2 percent to $87.81 during the same period. RevPAR growth throughout the state increased a substantial 12.4 percent to $50.76 by the end of the first quarter of 2011.

Bijlani

In Central Texas, the economy continues to strengthen. Austin job growth will improve as the pace of hiring accelerates. During 2011, local employers will add 21,000 positions, a 2.7 percent increase and up from the creation of 14,400 jobs last year. Similarly, San Antonio metro payrolls will expand 2.4 percent this year as employers add 20,000 positions. The professional and business services and education and health services sectors will increase by 3 percent and 4 percent, respectively

Tourism activity in Central Texas will receive a lift next year with the completion of a $250 million Formula One race track in southeast Austin near the Austin Bergstrom International Airport. The 970-acre, 3.4-mile racetrack is expected to come online in 2012. As a result of the new Grand Prix-style racetrack, hotel room demand is expected to pick up from both out-of-state and foreign travelers.

Rockwall Commons, a 216,651-square-foot mixed-use property in Rockwall, Texas, has changed hands. It consists of 202 multifamily units as well as retail and office space. See page 9.

The largest recent transaction in Central Texas closed last August when a joint venture of Lodging Capital Partners and Syndicated Equities Group secured a $56 million first mortgage loan from Mesa West Capital to refinance their existing mortgage on the 291-key Four Seasons Austin. The JV also received a mezzanine loan from Blackstone Real Estate Debt Strategies. Demand for the Four Seasons, which is in the Austin CBD, comes from the state capitol and University of Texas.

There is a very limited amount of distress in the Central Texas lodging sector. Investment activity in both Austin and San Antonio has been fueled by private investors, who plan to remain in the market for the long-term. Due to their belief that an economic recovery has truly taken place in Central Texas, local investors are leaving the sidelines and are poised to acquire hospitality assets now and in 2012.

— Michael (Kaiyi) Yu is a vice president, investments and Rahul Bijlani is an associate vice president, investments at Marcus & Millichap Real Estate Investment Services. Both hospitality investment specialists are based in the Houston office.

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