CapEx study authors: 4% reserves ‘not enough’
CapEx study authors: 4% reserves ‘not enough’
13 FEBRUARY 2019 7:10 AM

The latest hotel CapEx study from the International Society of Hospitality Consultants and the Hospitality Asset Managers Association breaks down capital expenditures, repairs and maintenance costs by percentage of total revenue and real dollars over a five-year period.

LOS ANGELES—Four percent is not enough.

That’s the takeaway from International Society of Hospitality Consultants and Hospitality Asset Managers Association executives’ “CapEx 2018” study, which compiles data and analysis around capital expenditures and repairs and maintenance spending in the hotel industry from 2013 to 2017.

“The importance of this study is that we have the historical data and continue to show again and again the importance of capital planning,” said Matt Arrants, EVP of Pinnacle Advisory Group and part of the CapEx committee that compiled the research. “Looking behind the numbers,” it’s clear that “4% is not enough” for CapEx reserves, he said.

Source: CapEx 2018

Alan Benjamin, co-chairman of the CapEx committee and president of Benjamin West, further emphasized that the research shows the complex relationship between revenue, what’s really involved in CapEx and repairs and maintenance spending, and why it’s important to look at spending in real dollars and what that means for your hotel project.

“This five-year period from 2013 to 2017 had nothing but increasing revenues—room revenues, (food-and-beverage) revenues, you name it,” Benjamin said. “The prior two study (periods) showed peak-valley-peak. Because of that—and CapEx always is expressed as a percentage of revenue—revenue went up much higher relative to CapEx. So CapEx as a percentage of revenue declined in this study compared to the prior study, which is not what we expected.”

CapEx spending was 7.6% of total revenue in this study period, down 0.7% from 8.3% during the period of 2009 to 2013.

But Benjamin warned that “it’s not a tale of two cities, it’s a tale of two statistics.”

“In real dollars per room, (CapEx spending) actually went up 32%” in this study period,” he said.

“Owners can’t just take a quick look at CapEx as a percentage,” he said. “They have to hit pause, take a deep dive and really look at the dollars being spent.”

Behind the numbers
To that point, Benjamin echoed Arrants’ assertion that the typical 4% CapEx reserve is no longer current.

“Four percent … has been the industry standard in most reserves and loan documents,” which is now outdated due to many factors today that combine to paint a true CapEx picture, he said.

For example, he said, new midscale brands often have higher per-room furniture, fixtures and equipment costs than full-service brands. The overall competitive brand landscape also has driven CapEx costs up, he said.

“The huge proliferation of brands … is driving what you might call premature CapEx—where you’re forced to replace items in order to stay competitive before they’re worn out,” Benjamin said.

Repairs and maintenance
It’s also important to recognize the differences between CapEx spending and repair and maintenance spending, Benjamin said—not only what the differences are, but how they’re accounted for, expensed or capitalized.

According to the 2018 study, hotel repairs and maintenance for the study period came in at 4.1% of total revenue, which is generally consistent, Benjamin said. “But actual dollars spent shows a 25% increase,” he added. (See below for a chart showing CapEx and repairs and maintenance spending as a percentage of total revenue broken out by average daily rate categories.)

Source: CapEx 2018

Property age plays a big role in both CapEx and repairs and maintenance investments, Benjamin said.

“As humans, we tend to have a mid-life CapEx crisis that occurs around age 50, 60, 70, with knees, backs, hips and stuff like that,” he said. “Hotels have that mid-life crisis around year 25 to 30, and typically they have a huge investment or sometimes a rebranding.”

The study is produced every four years by a partnership between the International Society of Hospitality Consultants and the Hospitality Asset Managers Association. The 2018 edition includes the CapEx and repair and maintenance data, analyses from industry executives and the JN+A and HVS Design Hotel Cost Estimating Guide 2018. For more information visit

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