CapEx top of mind at ALIS
CapEx top of mind at ALIS
28 JANUARY 2015 8:39 AM
Data soon to be published by ISHC and HAMA will identify trends in capital expenditure and repair and maintenance spending in the hotel industry throughout the recession and early recovery years.  
LOS ANGELES—Data soon to be published by the International Society of Hospitality Consultants and the Hotel Asset Managers Association will identify trends in capital expenditure and repair and maintenance spending in the hotel industry throughout the recession and early recovery years.  
The study, “CapEx 2014: A study of capital expenditures in the hotel industry,” shows variances and trends in CapEx and repair and maintenance spending in United States hotels, broken down by full industry, segment (select-service, full-service and extended-stay categories), hotel age, hotel type and more. 
The full report will be available this spring. Here are some highlights of the findings, which were compiled from more than 500 hotels representing 42 hotel brands and independent from 2007 to 2012:
  • 2010 represented the lowest CapEx spending in the cycle. 2008 represented the highest combined spend of CapEx and R&M, at 16% of annual revenue.
  • CapEx spending for all sampled properties in 2012 was 9.4% of annual revenue, which was a rebound to 2007 levels but still below 2008 peak spending, which was 11.4% of revenue. 
  • Repair and maintenance spending for all properties ranged from 4.2% to 5.1% of revenue, with the highest levels recorded in 2009 and 2010. 
  • Resort hotels led the CapEx spending among all properties during the study period, followed by airport hotels, suburban hotels then urban hotels. 
  • Real estate investment trust owners outspent other owner types over this cycle, spending on average 9.5% of revenue compared to 4% spent by non-REIT owners. 
  • Hotels built before 1990 had the highest CapEx spends (9.6%), while hotels built after 2000 spent 2.9% on average.

Study authors also shared some analysis behind the numbers. 
Larry Doyle, senior VP of asset management for Ashford, pointed out the correlation between average daily rate, revenue per available room and CapEx and repair and maintenance spend. 
“There’s a good correlation with RevPAR index, with one exception,” he said. “As the recession kicked in in 2008, RevPAR index was really reduced, yet 2008 showed the highest total of CapEx spend in this study cycle. By 2012 we were exiting the recession. RevPAR index was back up, and CapEx and (repair and maintenance) was right back up to where it was in 2007.”
Jonathan Nehmer, founder and chairman of JN+A, pointed out some trends in full-service versus select-service hotels in the study. 
“The peak spend for full-service hotels this time around came for 9- to 10-year-old hotels, which was their first renovation cycle,” he said. “On the select-service side, you see most hotels doing their first renovation at 8 to 9 years, then 13 to 14 years, and by year 22 you see a big spike in spending—that shows things can start to fail at that point.” 
Goodbye to 4% reserves?
Michael Doyle, executive VP of Capital Hotel Management, shared some trends in spending by hotel location and type. Suburban hotels showed the highest spend by location, and resort led the pack in spending by hotel type. 
“We think that all in all, it’s very clear that the 4% reserve notion is really no longer applicable and instead we have to look at a hotel’s actual location to determine the appropriate level of spend, and work with brands and operators to find the right balance,” he said. 
Alan Benjamin, president of Benjamin West, agreed. 
“A lot of people plug in 4% as that horizontal line,” he said. “But younger properties of course require less, and peaks come when you have to spend more. The key is to keep a reserve and try not to spend it all today.” 
In addition to historic CapEx and repair and maintnenance spending data, the 2014 study includes articles from ISHC and HAMA members on spending trends, and the “Hotel cost estimating guide” from HVS. 
Data for the study was provided by STR Analytics, sister company of Hotel News Now.

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